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United States Court of Appeals 

for the 

District of Columbia Circuit 



TRANSCRIPT OF 
RECORD 






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UNITED STATES COURT OF APPEALS FOR THE 

DISTRICT OF COLUMBIA 

April Term, 1937 


No. 6960 

UNITED STATES SHIPPING BOARD MERCHANT FLEET 
CORPORATION. TO THE USE OF THE UNITED STATES 
OF AMERICA, APPELLANT 

VS. 

THE AETNA CASUALTY AND SURETY COMPANY, A 

CORPORATION, APPELLEE 


APPEAL FROM THE DISTRICT COURT OF THE UNITED STATES FOR 

THE DISTRICT OF COLUMBIA 


INDEX 

Qriginal 


Caption........j 

Declaration.......j 

Exhibit 1...-.| 

Exhibit 2 __. j 

Exhibit 3_- j 

Exhibit 4......-.| 

Exhibit 5____-.j 

Exhibit 6__ 

Exhibit 7....-.! 

Exhibit 8. j 

Pleas of defendant-- j 

Memorandum opinion-! 

Finding by court for defendant-i 

Motion for judgment for plaintiff and request for exceptions., j 

Note.- | 

Memorandum: Findings of fact and conclusions of Law in j 
favor of defendant filed. Same will be found in bill of excep- | 

tions- j 

Motion for judgment denied and exceptions allowed and judg- j 
ment on the finding of Court ordered, judgment, exception j 

"noted and allowed_I 

Motion for extension of time for filing bill of exceptions-j 


A 

1 

11 

14 

19 

25 

27 

28 

32 

33 
65 
68 
69 

69 

70 


70 


71 

71 


143081—37-1 


I 


Print 

1 

1 

7 

10 

15 

20 

23 

24 
29 
29 
57 
59 
59 

59 

60 


60 


60 

61 























n 


INDEX 


Caption—Continued. Original Print 

Appeal noted by plaintiff_ 71 61 

Motion for extension of time for filing bill of exceptions 

granted. 72 61 

Assignment of errors-- 72 61 

Memorandum: Bill of exceptions and notice filed.. 73 62 

Order making bill of exceptions part of record- 74 62 

Designation of record- 74 63 

Clerk's certificate. 76 63 

Bill of exceptions-- 78 64 

Stipulation as to the testimony of— 

Raymond F. Tallman_ 85 69 

Vaughn T. Harford. 89 71 

Glenn Rose..—.... 90 71 

Plaintiff’s Exhibit 1—Contract dated April 16, 1923, by 
and between the United States Shipping Board Emer¬ 
gency Fleet Corporation and the United States of 

America.. 93 73 

Exhibit 2—Resolution adopted by the United States Ship¬ 
ping Board September 30, 1921 .. 96 75 

Exhibit 2-A—Resolution adopted by the United States 

Shipping Board January 10, 1924... 98 76 

Exhibit 3—Resolution adopted by the United States 

Shipping Board December 22, 1924. 103 79 

Exhibit 4—Resolution adopted by the United States 

Shipping Board on October 1, 1925__. 107 82 

Exhibit 5—Letter dated April 8, 1921, from District 

Auditor to Sigsbee, Humphrey & Co.. 110 83 

Exhibit 6—Letter dated April 15, 1921, from R. W. 

Bolling, treasurer, to Aetna Casualty & Surety Co- 111 84 

Exhibit 7—Letter dated April 19, 1921, from U. J. Gendron 

Manager Contract Bureau to Sigsbee, Humphrey & Co. 112 84 

Exhibit 8—Letter dated May 14, 1921, from Sigsbee, 

Humphrey & Co. to U. J. Gendron.. 112 85 

Exhibit 9—Letter dated May 14, 1921, from W. R. Harper 

to U. J. Gendron_ 113 85 

Exhibit 10—Letter from R. W. Bolling to Aetna Casualty 

& Surety Co. 114 86 

Exhibit 11—Letter dated September 9, 1921 from John 
E. Fetzer, assistant counsel, to N. A. Smyth and S. H. 

Freund__ 115 87 

Exhibit 12—Office memorandum no. 29 dated March 30, 

1922, United States Shipping Board Emergency Fleet 

Corporation.. 126 93 

Exhibit 13—Letter dated July 25, 1922, from J. E. Fetzer 

to Sigsbee, Humphrey & Co_ 128 94 

Exhibit 14—Letter dated April 18, 1922, from Frank A. 

Matson, auditor of receipts, to Sigsbee, Humphrey & 

Co. 131 96 

Exhibit 15—Letter dated September 29, 1922, from J. E. 

Fetzer to Sigsbee, Humphrey & Co.. 131 97 

Exhibit 16—Letter dated October 11, 1922, from J. T. 

Jones, manager, to R. W. Bolling__ 132 97 
































INDEX 


III 


I 


Caption—Continued. 

Bill of exceptions—Continued. Original Print 

Exhibit 17—Letter dated October 24, 1922, from T. L. j 

Clear, treasurer, to J. T. Jones. 133 98 

Exhibit 18—Letter dated October 26, 1922, from D. S. j 

Morrison to J. E. Fetzer......j 133 98 

Exhibit 19—Letter dated November 13, 1922, from J. E. 

Fetzer to R. R. Sigsbee.. j 140 102 

Exhibit 19-A—Statement, dated November 8, 1922, by 
E. M. Steinmetz, field auditor, of amounts withdrawn 

by Sigsbee, Humphrey & Co. from trust fund_ ! 141 104 

Exhibit 19*4—Letter dated November 25, 1922, from A. 

D. Lasker, chairman, to Sigsbee, Humphrey & Co_! 146 106 

Exhibit 20—Letter dated December 13, 1922, from ! 

Sanford E. H. Freund, general counsel, to Sigsbee, j 

Humphrey & Co. | 147 106 

Exhibit 21—Letter dated April 3, 1928, from Chauncev G. 

Parker to Aetna Casualty & Surety Co.... j 147 106 

Exhibit 22—Letter dated September 27, 1928, from 

Chauncev G. Parker to Aetna Casualty & Surety Co_. j 148 107 

Exhibit 23—Letter dated October 3, 1928, from C. K. 

Mount, secretary, to Chauncev G. Parker_ j 149 107 

Exhibit 24—Letter dated December 4, 1928, from Chaun- 

cey G. Parker to Aetna Casualty & Surety Co_ 

Exhibit 25—Letter dated January 4, 1929, from C. K. 

Mount to Chauncev G. Parker.. 

Exhibit A—By Laws of the United States Shipping Board 
Emergency Fleet Corporation as amended October 29, 

1919__. 

Exhibit B—Resolution adopted June 27, 1919_ 


149 

108 

150 

108 

152 

110 

161 

115 




















1 


U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 

a District Court of the United States for the District of 

Columbia j 

i 

At Law, No. 80416 | 

United States Shipping Board Merchant Fleet Corporation to 
the Use of the United States of America, plaintiff 

vs. 

The Aetna Casualty and Surety Company, a Corporation, 

defendant 

United States of America, 

District of Columbia, ss: 

Be it remembered, That in the District Court of the United States 
for the District of Columbia, at the City of "Washington, in said 
District, at the times hereinafter mentioned, the following papers 
were filed and proceedings had, in the above-entitled cause, to wit: 

j 

1 Supreme Court of the District of Columbia ! 

At Law No. 80,416 i 

United States Shipping Board Merchant Fleet Corporation to 
the Use of the United States of America, plaintiff 

' | 

The Aetna Casualty and Surety Company, a Corporation, 

DEFENDANT 

Declaration 

i 

Filed October 22. 1931 j 

The Plaintiff. United States Shipping Board Merchant Fleet 
Corporation, by its attorney, Leo A. Rover, United Statjes Attorney 
in and for the District of Columbia, acting at the direction of the 
Attorney General of the United States of America, sue$ The Aetna 
Casualty and Surety Company, defendant above named, to the use of 
the United States of America and alleges: 

1. The United States Shipping Board Merchant Flpet Corpora¬ 
tion is a corporation created, organized, and existing under the laws 
of the United States, to-wit: the Act of Congress, March 3, 1901, 
entitled “An Act to provide a code of laws for the District of Colum¬ 
bia”, the Shipping Act, 1916, and possessed and possesses certain 
further powers delegated to it by the President of the United States 
pursuant to the Emergency Shipping Fund Provisions of the Urgent 
Deficiencies Appropriation Act of June 15, 1917, and the! acts amend¬ 
atory thereof and supplementary thereto, particularly tjie Merchant 
Marine Act, 1920, and powers also delegated to it by the United 
States Shipping Board pursuant to the aforesaid acts. The name of 
the United States Shipping Board Emergency Fleet Corporation 
was changed to the United States Shipping Board Merchant Fleet 
Corporation by Act of Congress, passed February 11. 1927. The 
contracts herein set forth were made by the plaintiff under 
and pursuant to the powers so delegated to it. 


2 



2 U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 


2. The defendant. The Aetna Casualty and Surety Com¬ 
pany, is a body corporate, organized and existing under and by virtue 
of the laws of the State of Connecticut, having a place of business 
and being engaged in the transaction of business at the Investment 
Building, in the District of Columbia. 

3. That at various dates, prior to January 27, 1920, the plaintiff, 
acting for and on behalf of the United States of America, and Sigsbee 
Humphrey & Company, Inc., a corporation organized under and by 
virtue of the laws of the State of New York, entered into certain 
agreements in writing covering the vessels named therein, designated 
“M-2” and “0-2”, wherein and whereby said Sigsbee Humphrey & 
Company, Inc., hereinafter called the “Agent' 7 was appointed agent 
for the management, operation, and conduct of the business of such 
vessels, which were the property of the United States of America, as 
had theretofore been assigned or might thereafter be assigned to the 
Agent for such purposes, and wherein and whereby the Agent agreed, 
among other things, to collect at the proper time, all freights and 
other moneys arising out of the management, operation, and business 

of such vessels, and to advance all disbursements and customarv 

< %/ 

cargo, managing and operating expenses, and other reasonable 
expenses, customarily paid by a vessel owner. The Agent, by the 
terms of said agreements, agreed to deposit all moneys collected on 
behalf of plaintiff in a National Bank or a proper bank of the United 
States Federal Reserve Association, as a separate trust fund, in the 
name of the plaintiff; said moneys not to be mingled with moneys 
owned or held by the Agent, and the Agent agreed to make from 
such funds all disbursements authorized to be paid by plaintiff, and 
to render at such times and in such form as plaintiff might direct, a 
full account of all moneys received by it, no items aggregating more 
than $10 to be allowed in settlement unless supported by proper 
vouchers. 

4. That pursuant to said “M-2” “0-2” agreements the following 

named vessel, together with others, owned by the United States 
3 of America, was duly assigned to said Sigsbee Humphrey & 
Company, Inc., and receipted for in writing by it, and, after 
having been so assigned and entered under the terms and conditions 
of the aforesaid agency agreements at the delivery date set opposite 
the name of said vessel, was operated by the said Agent under the 
terms of said agreements from the said delivery date to the time said 
vessel was surrendered by said Agent on the date set opposite the 
name of said vessel as follows: 

Vessel, “West Carnifax.” 

Date vessel delivered to Agent, October 15, 1919. 

Date vessel redelivered by Agent, April 19, 1920. 

Copies of said agreements are hereunto annexed, marked “Exhibits 
1 and2”, respectively, and by reference made a part of this dec¬ 
laration. 

5. Agent further agreed in and by the terms of said agreements 
to keep separate books of account devoted exclusively to the agency 
business and upon the execution and delivery of said" agreements, or 
at any other time as so required by the plaintiff, to furnish a bond 
satisfactorv to the plaintiff, in such amount as the plaintiff might 
order, for the faithful discharge of the obligations and duties assumed 
by the Agent under the said agreements. 


I 


U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 3 

6. Pursuant to the last aforesaid requirement of the above agree¬ 
ments, the said Agent, as principal, and the above named! defendant, 
as surety, made, executed, and delivered their certain bond or writing 
obligatory, dated the 27th day of January 1920, which bopd plaintiff 
now brings into court. By the terms of said bond or writing obliga¬ 
tory, defendant and said Agent acknowledged themselves to be held 
and firmly bound to plaintiff as obligee in the sum of $500,000 lawful 
money of the United States of America, for the payment of which 
sum well and truly to be made, said Agent and defendant did bind 
themselves, their successors and assigns, jointly and severally. The 

condition of said bond is as follows: 

4 “Whereas, the United States Shipping Board Emergency 

Fleet Corporation has entered into an agreement vHth Sigsbee 
Humphrey & Company for the operating and/or managing of certain 
vessels heretofore or hereafter assigned to said Sigsbee Humphrey & 
Company, as Manager and/or Operators; and i 

“Whereas, the United States Shipping Board Emergency Fleet 
Corporation required Sigsbee Humphrey & Company to furnish a 
bond to save the said Corporation harmless against sucn pecuniary 
loss as the Corporation shall sustain by anv act of fraud, dishonesty, 
forgery, theft, embezzlement, wrongful abstraction of yrillful mis¬ 
application of any moneys or funds that may come into the possession 
or control of Sigsbee Humphrey & Company, during the life and by 
reason of the aforesaid agreement, and to properly Recount for, 
receive and disburse said funds, including the prompt [payment to 
the said Fleet Corporation, of the amounts required by tjhe terms of 
the aforesaid agreement. 

“Xow therefore, the condition of this obligation is such that if 
the above bounden Sigsbee Humphrey & Company shall well and 
truly save the said Corporation harmless against sucn pecuniary 
loss as the Corporation shall sustain by any act of fraud^ dishonesty, 
forgerv, theft, embezzlement, wrongful abstraction or willful mis- 
application of any moneys or funds that may come into the possession 
or control of Sigsbee Humphrey & Company during the life and by 
reason of the aforesaid agreement, and shall properly Account for, 
receive and disburse said funds, including the prompt payment to 
the said Fleet Corporation of the amounts required by the terms of 
the aforesaid agreement, and at the expiration or earlier termination 
of its position, shall faithfully account for and turn oveif to the said 
United States Shipping Board Emergency Fleet Corporation, any 
moneys, property, or other funds for which it may be accountable, 
then this obligation shall be void, else to remain in full force and 
effect.” 

A copy of the aforesaid bond is hereto annexed, marked “Exhibit 
3”, and by reference made a part of this declaration. 

7. Thereafter, on or about March 4, 1920, the United States of 
America, represented by the plaintiff, and the said Sigsbee Humphrey 
& Company, Inc., entered into an agreement in writing!, dated that 
day, designated “MO-3”, covering the management and operation of 
such vessels belonging to the United States as had theretofore been 
assigned, or might thereafter be assigned to the agent. <£opy of said 
“MO-3” agreement, as executed, is hereto attached, marked “Exhibit 
4”, and by reference made a part of this declaration. 


i 



4 U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 

8. Pursuant to the terms of said “MO-3” agreement, the Agent, 

among other things, agreed to perform all of the customary 

5 duties of managing and operating the vessels, and to perform 
or cause to be performed all customary agency duties con¬ 
cerned with loading and discharging cargoes at all ports included in 
the vessels 7 itinerary, and all things necessary for the protection and 
safe-guarding the interests of the plaintiff, to collect all freights and 
other moneys arising out of the management, operation and business 
of the vessels, and to advance all disbursements and customary cargo, 
managing and operating expenses, and other reasonable expenses 
proper to be paid by a vessel owner. The Agent agreed to deposit 
all moneys collected on behalf of plaintiff in a National Bank or a 
proper bank of the United States Federal Reserve Association, as a 
separate trust fund in the name of the plaintiff, and further agreed 
that the said moneys were to be, so far as the Agent was concerned, 
the property of the plaintiff, and as directed by the plaintiff, render 
a full account of all moneys received, no items aggregating more than 
$10 would be allowed in settlement by the Agent unless supported 
by proper vouchers. The compensation due the Agent was to be 
paid monthly on voucher from the plaintiff. The Agent agreed to 
keep separate books of account, as might be prescribed by the plain¬ 
tiff, which would be devoted exclusively to the agencv business, and 
the plaintiff agreed to pay the Agent certain compensation for act¬ 
ing as such Agent and Manager, as is indicated under the terms of 
said “MO-3 77 agreement, and said Agent agreed, at the time of the 
execution of said agreement or at any other time as so required by 
the plaintiff, to furnish a bond satisfactory to the plaintiff, in such 
amount as the plaintiff might order, for the faithful discharge of the 
obligation and duties assumed by the Agent. 

9. Pursuant to the terms of the aforesaid “MO-3” agreement, the 
following named vessels were duly assigned to the said Sigsbee 
Humphrey & Company, Inc., and receipted for in writing by it, and. 
after having been so assigned and entered under the terms and condi- 
tions of the aforesaid agreement, at the respective delivery dates set 

opposite the names of the said vessels, were operated by the 

6 said Agent under the terms of said “MO-3” agreement from 
the said deliverv dates to the time said vessels were sur- 

rendered by said Agent on the respective dates set opposite the names 
of said vessels as follows: 


Vessel 

Date vessel delivered to agent 

Date vessel withdrawn 
from “MO-3’' agree¬ 
ment 

Cabegon... 

April 27, 1920. 

January 7.1921. 

May 28, 1920. 
November 7,1920. 
October 20, 1920. 
November 23,1920. 
November 16,1920. 
December 3,1920. 
September 17,1920. 

Conshohocken. .. 

March 22. 1920. 

Eastern Dawn.... 

July 1. 1920.... 

Jadden_ __ . _ J. _ 

May 26, 1920. 

Salaam 

Julv 29. 1920..... 

West Lashaway__ 

May 22, 1920. 

West Segovia _ _ T ! _ _ T 

August 6, 1920... 

West Zeda_ _ . . ___ _ L_ 

April 25, 1920... 




10. Thereafter, on or about June 7, 1920, defendant, as surety, 
agreed that the execution of the aforesaid “MO-3” agreement should 
not release defendant from liability under the aforesaid bond and 
writing obligatory, executed January 27, 1920, but that the same 























U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 5 

should apply to said “MO-3” agreement, subject to the terms and 
conditions of said bond. A copy of said agreement is hereto annexed, 
marked “Exhibit 5.” 

11. That on or about February 10,1921, the United Stafes of Amer¬ 
ica, represented by the plaintiff, and the said Sigsbee Humphrey & 
Company, Inc., entered into a further agreement in writing, dated 
that day, designated “MO-4”, covering the management and operation 
of such vessels of the United States as had theretofore been assigned 
or might thereafter be assigned to the said Agent for jmanagement 
and operation. A copy of said “MO-4” agreement, as! executed, is 
hereto annexed, marked “Exhibit 0” and by reference made a part 
hereof. Pursuant to the terms of said agreement, the Agent agreed 
to manage, operate and conduct the business of such vessels belonging 
to the United States, and the Agent agreed, among othbr things, to 
collect all freights and other moneys arising out of the pianagement, 
operation and business of the vessels and to deposit all §uch moneys, 
so collected, and such moneys as might be advanced to said Agent by 
the plaintiff, in connection with the said operation, ip a National 

Bank or a proper bank of the United States Federal Reserve 
7 Association, as a separate trust fund in the name of the plain¬ 
tiff, and further agreed that said moneys were to jbe, so far as 
the Agent was concerned, the property of the plaintiff, ^nd might be 
subject to a check by the plaintiff, as well as by the Agent, and said 
Agent was authorized to make disbursements, but that: no items of 
disbursements should be allowed in settlement by the Agent unless 
supported by proper vouchers or accounts, and said Agent agreed to 
keep separate books of account devoted exclusively to j the Agent’s 
business with the plaintiff and to furnish, whenever required by the 
plaintiff, a bond satisfactory to the plaintiff, for the faithful per¬ 
formance of the Agent’s duties and obligations in said agreement. It 
further provided that the said “MO—i” agreement was in] substitution 
of and abrogated the agreement known as “MO-3”, and that all rights 
and obligations of the parties under said “MO-3” agreement were 
canceled and the “MO-4” agreement made retroactive jto March 1, 
1930, except as to vessels that sailed subsequent to March 1, 1930, 
and which completed their round voyage (U. S. to a foreign port and 
return to U. S.) prior to the signing of the “MO—1” agreement, to 
which vessels the “MO-3” was in force and applicable, j 

12. Pursuant to the terms of said “MO-4” agreement, the following 
named vessels, together with others, were duly assigned to the said 
Sigsbee Humphrey & Company, Inc., and receipted for ip writing by 
it, and, after having been so assigned and entered under the terms 
and conditions of the aforesaid “MO-4” agreement, at tjie respective 
delivery dates set opposite the names of said vessels, were! operated by 
said Agent under said “MO-4” agreement from the s^iid delivery 
dates to the respective redelivery dates set opposite the names of said 
vessels: 

Date vessel delivered to agent 

Ozaukee—.. December 1,1920. 

Radnor... January 18,1921.. 

West Harcuvar.. January 14.1921. 

West Segovia. December 4,1920. 


Date vessel redelivered 
by agent 

! 

April 14, 1921. 

August 10, 1921. 
August 12, 1921. 

July 30,1921. 

I 


Vessel 
















0 U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 

13. Thereafter, on or about June 15, 1921, defendant, as surety, 
consented to change in the operators contract to “MO-4” agree¬ 
ment and agreed that its liability under the aforesaid bond 

8 and writing obligatory, executed under date of January 27, 
1920, would not be impaired. A copy of said agreement is 

attached to this declaration and marked “Exhibit 7.” 

14. That said Agent did not faithfully or properly perform its 
obligations as Agent for the aforesaid vessels under the said “M-2” 
“0-2”, “MO-3”, and “MO-4” agreements, but on the contrary wholly 
neglected to discharge such obligations or perform such duties during 
the period of said management and operation of such vessels, ana 
during the life of said bond, in that said Agent came into possession 
and control of large sums of money belonging to the plaintiff, to the 
use of the United States of America, arising out of the operation 
and management of said vessels, for all of which the said Agent was 
liable to account to the plaintiff under the terms of said agreements. 
Said Agent committed large numbers of defaults under the terms 
and obligations of said agreements, in that said Agent did not ac- 
count for said moneys to the plaintiff or to anyone else on behalf of 
the plaintiff, it did not disburse the said moneys solely for the opera¬ 
tion, management, and business of said vessels, did not faithfully 
account for and turn over to the plaintiff or to the United States of 
America the moneys and other properties for which the said Agent 
was accountable and has taken credit for items for which it should 
be charged: did wrongfully and willfully withdraw from said 
moneys and funds fees, commissions, and expenses to which said 
Agent and its sub-agents were not entitled; did wrongfully and will¬ 
fully represent facts, known to said Agent to be false, and did con¬ 
ceal from the plaintiff material facts covering the handling of the 
said moneys, all for the purpose of securing and did thereby secure 
from the plaintiff advances of money and funds belonging to the 
plaintiff, for the purpose of carrying out the management and oper¬ 
ation of said vessels, and for the purpose of paying fees and com¬ 
missions to said Agent, to which the said Agent was not entitled; 
and said Agent has misapplied and wrongfully and fraudulently 
appropriated funds belonging to the plaintiff to the use of the United 

States of America, for which said Agent was accountable 

9 under said operating agreements and has failed to account 
to the plaintiff or to the United States of America for such 

funds. 

15. By reason of the premises, said Agent became and now is 
indebted to the plaintiff to the use of the United States of America, 
for moneys collected and wrongfully and fraudulently disbursed, 
diverted or misapplied by it, as manager and operator, and not 
accounted for as aforesaid, in the sum of $170,549.79, being the bal¬ 
ance, ’which, after making all deductions and allowances, which 
should have been properly made to the credit of said Agent, should 
have been turned over by the Agent to the plaintiff to the use of the 
United States of America, as shown on the account hereto annexed 
and marked “Exhibit 8.” 

16. That thereupon and by reason of said breaches, the said bond 
and writing obligatory became forfeited, and thereby an action 
accrued to plaintiff, to the use of the United States of America, to 








U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 


demand and have of and from said defendant the sum of $170,549.79, 
together with interest thereon from the first day of January 1922. 
Plaintiff, representing the United States of America hks duly de¬ 
manded of defendant payment of the sum of $170,549.79. Neverthe¬ 
less, defendant refused and still refuses to pay the said sum or any 
part thereof, and no part of said sum of $170,549.79, hor interest 
thereon, has been paid to plaintiff, or to the United States of Amer¬ 
ica by the said Agent or by defendant, or any of them, of by anyone 
in their behalf. 

17. Plaintiff in all of its aforesaid dealings with the said Agent, 
and with the defendant, acted solely as the duly authorized agent 
and representative of the United States of America, which was the 
owner of the aforesaid vessels, and which was at all times and is 
entitled to all of the benefits of the foregoing contracts, bond and 
writing obligatory, and to the full and direct ownership of all 

moneys which should have been or may be paid to the plaintiff 
10 thereunder, or by reason of any rights acquired hy plaintiff 
thereunder. 

18. Immediately upon evidence of loss by reason of the acts of 

said Agent, the plaintiff, at the instance of the United States of 
America, gave to defendant notice thereof, together with all available 
facts, and afforded defendant every reasonable opportunity for 
investigating said pecuniary loss. | 

19. The plaintiff and the United States of America liajve duly and 
fully performed all of the obligations and conditions |required of 
them, or either of them, to be performed by said contracts and bond. 

Wherefore, the plaintiff brings this suit to the use oij the United 
States of America, and claims to the use of the United States of 
America the sum of five hundred thousand dollars ($o00,000) and 
costs of suit. 

Leo A. Rove&, 

United States Attorney for the District of Colombia. 

Attorney for Plaintiff. 


Exhibit 1 


Form M-2 


United States Shipping Board Emergency Fleet Corporation 


MANAGING AGREEMENT 

! 

This Managing Agreement, made this 18th day of Oct. 1919, by 
and between the United States Shipping Board Emergency Fleet 
Corporation, the first party, hereinafter called The Corporation, and 
Sigsbee, Humphrey & Company, Inc., of New York, the Second party, 
hereinafter called The Manager, witnesseth: 

Whereas The Corporation is operating the vessel “Wefet Carnifax” 
and certain other vessels and desires to make an agency Contract with 
The Manager for the husbanding and managing of said vessel and 
such other vessels as it has assigned and may assign The Manager - 
for such purpose. 

Now, therefore, it is agreed as follows: 

First. The Corporation hereby appoints The Manager as its agent 
for the husbanding and managing of the vessel “West Carnifax” 




g U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 

and such other vessels as The Corporation has assigned, and may 
from time to time assign, to The Manager for such purpose. 

Second. The Corporation will provide and pay for ail fuel, fresh 
water, stevedoring, port charges, pilotages, agencies, commissions, 
and consular charges, except those pertaining to the master, officers, 
and crew, and all other expenses which are usually borne by a time 
charterer of a vessel. 

Third. The Manager, as such agent: 

(a) Shall act as The Manager of the vessel in such trade or serv¬ 
ice as The Corporation shall direct, being subject to the orders of The 
Corporation as to voyages, cargoes, priorities of cargoes, charters, 
rates of freight, and other charges, and as to all matters connected 
with the use of the vessel. 

(b) Shall take proper delivery of the vessel from the Operation 
or Construction Division of The Corporation, or from the owner, 
builder, or anyone else having control, as The Corporation may 
direct. 

(c) Shall exercise due diligence to man, equip, victual, and supply 
the vessel, and to provide and pay for all provisions, wages, and 
consular, shipping, and discharging fees of the master, officers, and 
crew; all cabin, deck, engine room, and other necessary stores; and 
all other costs and expenses (except those expenses to be paid by The 
Manager out of his own funds covered by the compensation and 
fees hereafter provided for) properly incident to the management 
of the vessel, including war risk insurance, if any, required by law 
on the master, officers, and crew. 

(d) Shall exercise due diligence to maintain the vessel in a 
thoroughly efficient state in hull, machinery, tackle, apparel, furni¬ 
ture, and equipment, procuring for and on behalf of The Corpora¬ 
tion the necessarv labor and material to effect ordinarv running 
repairs and replacements. No extraordinary repairs or expenses 
shall be made or incurred, and no alteration in hull, machinery, or 
equipment shall be made, by The Manager, except in serious emer¬ 
gency, without first securing in writing the authorization of The 
Corporation. 

(e) Shall exercise due diligence to see that no damage to the 
vessel arises from loading improper cargo, from improper stowage, 

or from improper berthing of the vessel. 

12 (f) Shall, whenever no separate Operator is acting, do the 

things required of an Operator under the terms and conditions 
of the regular form of Operating Agreement of The Corporation 
then in use. 

(g) Shall hold all moneys collected on behalf of The Corporation, 
and shall deposit the same in national banks, or banks which are 
members of the United States Federal Reserve Association, as a 
separate trust fund to be designated “Sigsbee, Humphrey & Com¬ 
pany, Inc., Shipping Board Funds”, and shall not mingle the same 
with other moneys owned or held by The Manager, and shall make 
from such funds all disbursements hereinafter authorized to be paid 
by or to The Manager for account of The Corporation, and shall, 
promptly after the dispatch of each vessel, or at such other times as 
may be directed, account to The Corporation for moneys received 
and disbursed. No items not supported by vouchers aggregating 
more than $10 will be allowed. 













U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 9 

i 

(h) Shall keep separate accounts in such manner and form as 
may be prescribed by The Corporation of all moneys collected and 
disbursed, and accord to accountants and other representatives of 
The Corporation access to all books and papers, and render such 
assistance in the examination thereof as The Corporation may re¬ 
quire. 

(i) Shall exercise due diligence to do or cause to be done all things 
which would be done by the owner, or the owner’s agent, under the 
usual government form of time charter, attending to all matters 
in connection wtih the management of the vessel. 

Fourth. The Corporation, in consideration of the services or things 
herein agreed to be performed, shall pay compensation and allow 
commissions as follows: 

i 

1 

A. COMPENSATION FOR MANAGEMENT 

! 

I. For each vessel up to and including the fifth, $40(} per month, 
and at the same rate for each part of a month. 

II. For each vessel in excess of five, $350 per month, and at the 
same rate for each part of a month. 

Such compensation shall be payable to The Manager from the day 
of delivery of each vessel to The Manager until redeliyery or loss. 

B. COMMISSIONS FOR ADVANCING FUNDS 

j 

I. If The Manager is without funds of The Corporation, either as 
The Manager or as The Operator, for the disbursement of the vessel 
in foreign or dependency ports, and funds are there advanced by The 
Manager, or procured from others, a commission will be allowed in 
accordance with the usual commissions paid in the respective ports, 
as certified to the United States Shipping Board by the American 
Steamship Association, and verified by the Comptroller; 

Fifth. If The Manager shall knowingly permit any cargo to be 
carried without the consent of The Corporation or Tl^e Operator, 
The Manager shall receive no commission, fee, or other compensa¬ 
tion for any services rendered during the voyage. 

Sixth. Whenever The Corporation may legally have the advantage 
of any existing or future contracts of The Manager fpr the pur¬ 
chase of material, fuel, supplies, or equipment, it shall have the 
benefit thereof, provided that such contracts may be ma<ie available 
to The Corporation without unreasonably interfering vjvith the re¬ 
quirements of other vessels owned or operated by The Manager. - 
13 Seventh. The Corporation shall reimburse Tile Manager 
for all disbursements properly incurred on its behalf as au¬ 
thorized in this agreement. 

Eighth. All salvages shall be for the benefit of The Corporation. 
This provision, however, shall not be construed to deprive The Man¬ 
ager of any right to salvage reserved to The Manager as yessel owner 
under any charter. 

Ninth. The Corporation shall have the right, at any tin^e, to termi¬ 
nate this agreement as to any or all vessels assigned to The Manager, 
and to assume forthwith control of any or all of the vessels, and to 
collect directly all freights, moneys, or other charges reihaining un¬ 
paid. The Manager, however, in such case shall adjust] settle, and 




10 U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 

# 

liquidate the current business of the vessels if so required by The 
Corporation. 

Tenth. Upon giving The Corporation thirty days’ written notice, 
The Manager shall have the right to terminate this agreement, such 
termination not to become effective as to anv vessel until its arrival 
and discharge at a United States port. The Manager shall, however, 
if required by The Corporation, adjust, settle, and liquidate the cur¬ 
rent business of the vessel. 

Eleventh. The Manager shall, at the time of execution and deliv¬ 
ery of this agreement, or at any other time, if so required by The 
Corporation, furnish a satisfactory bond in such amount as The 
Corporation may order, for the faithful and proper discharge of 
the obligations and duties hereunder assumed. 

Twelfth. This agreement is made with the distinct understanding 
that The Manager has in his service a competent shore force con¬ 
sisting of at least one port captain and one port engineer, and in the 
event that six or more vessels are assigned to The Manager, one port 
steward, each of whom has had actual sea experience in his respective 
capacity. 

Thirteenth. This Agreement shall apply to the management of all 
vessels assigned to The Manager, sailing from United States ports 
on or after the 1st day of March 1919. 

United States Shipping Board 

Emergency Fleet Corporation, 

By Frank E. Ferris. 

For Director of Operations. 

SJH. 

Sigsbee. Humphrey & Company. Inc., 

By R. R. Sigsbee. The Manager. 

Witness as to signature: 

A. R. SlMONEL. 

Witness as to signature: 

W. D. Stitt. 


14 


Exhibit 2 


Form 0-2 


United States Shipping Board Emergency Fleet Corporation 


OPERATING AGREEMENT 

This Operating Agreement made this 18th day of October, 1919, 
by and between the United States Shipping Board Emergency Fleet 
Corporation, the first party, hereinafter called The Corporation and 
Sigsbee Humphrey & Company, Inc., of New York, the second party, 
hereinafter called The Operator, Witnesseth: 

Whereas, The Corporation is operating the vessel “West Carnifax” 
and certain other vessels and desires to make an agency contract with 
The Operator for the operation of said vessel and such other vessels 
as it has assigned and may assign to The Operator for such purpose; 

Now, therefore, it is agreed as follows: 

First. The Corporation hereby appoints The Operator as its agent 
for the operation of the vessel “West Carnifax” and such other ves- 









U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. H 

I 

j 

sels as The Corporation has assigned, and may from time to time 
assign, to The Operator for such purpose. 

Second. The Corporation will man, equip, victual, and supply the 
vessel, and provide and pay for all provisions, wages, arid consular, 
shipping, and discharging fees of the master, officers, an<l crew, and 
all cabin, deck, engine room, and other necessary stores; and will 
exercise due diligence to maintain the vessel in a thoroughly efficient 
state in hull, machinery, tackle, apparel, furniture and; equipment 
for and during service. 

Third. The Operator, as such agent: 

(A) Shall operate the vessel in such trade or service is The Cor¬ 
poration shall direct, being subject to the orders of Tlie Corpora¬ 
tion as to voyages, cargoes, priorities of cargoes, charters, rates of 
freight, and other charges, and as to all matters connected with the 
use of the vessel. 

(B) Shall provide and pay for all fuel, fresh water, Stevedoring, 
port charges, pilotages, agencies, commissions, and consular charges, 
except those pertaining to the master, officers, and crew and all other 
expenses which are usually borne by a time charterer of a vessel. 

(C) Shall exercise due diligence to see that all freight is prepaid, 

except when otherwise instructed by The Corporation, ot where the 
prevailing customs in the particular trade are to the contrary, in 
which case freight may be made payable at destination iii accordance 
with such custom. All freight in cases where cargo is perishable or 
not worth the freight charges must be prepaid unless the custom of 
the trade is to the contrary. j 

(D) Shall issue or cause to be issued to shippers customary freight 
contracts and bills of lading, and shall exercise due diligence to see 
that such bills of lading contain all exemptions and stipulations usual 
to the particular trade or service in which the vessel may be engaged, 
and reserve to Tne Corporation a lien upon all cargoes for the pay¬ 
ment of freight, primage charges, dead freight, demurrage, forward¬ 
ing charges, advance charges for carriage to port of shipment, for 
contributions in general average and special charges onj cargo, and 
for all fines or damages which the vessel or cargoes may incur by 
reason of illegal, incorrect or insufficient marking or addressing of 
packages, or description of their contents, and in trade^ where cus¬ 
tomary, make the shipments subject to usual war clauses, to the 

“Harter Act 7 ’, to a provision that all general average shall be 
15 settled, unless otherwise directed by The Corporation, at New 
York in accordance with York-Antwerp rules of 1890, and 
Antwerp rule of 1903, and otherwise in accordance with the rules 
and customs of the port of New York, and also subiect td the follow¬ 
ing clause: 

“If the owner of the ship shall have exercised due diligence to make 
said ship in all respects seaworthy and properly manned, equipped 
and supplied, it is hereby agreed that in case of loss, damage, danger, 
or disaster resulting from fault or negligence of the pilot, master, or 
crew, in the navigation or management of the ship, or from latent 
or other defects or unseaworthiness of the ship, whether existing at 
the time of shipment or at the beginning of the voyage or on the 
voyage, but not discoverable by due diligence, the owner shall not be 
liable therefor, and the consignee or owners of the cargo shall not 


12 S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 


be exempt from liability for contribution in general average, or for 
any special charges incurred, but with the shipowner shall contribute 
in general average and shall pay such special charges as if such loss, 
damage, danger, or disaster had not resulted from such fault, 
negligence, latent or other defect, or unseaworthiness.” 

(E) Shall collect all freights and other money due The Corpora¬ 
tion, advance all funds for all expenses properly to be paid by him 
as agent, and take proper general average security. 

(F) Shall hold all money collected on behalf of The Corporation, 
and shall deposit the same in national banks or banks which are 
members of the United States Federal Reserve Association, as a 
separate trust fund, to be designated “Sigsbee Humphrey & Com¬ 
pany, Inc., Shipping Board Fund”, and shall not mingle the same 
with other moneys owned or held by The Operator, and shall make 
from such funds all disbursements hereinafter authorized to be paid 
by or to The Operator for account of The Corporation, and shall, 
promptly after the dispatch of each vessel, or at such other times as 
mav be directed, account to The Corporation for moneys received 
and disbursed. No items unsupported by vouchers aggregating more 
than $10 will be allowed. 

(G) Shall keep separate accounts in such manner and form as 
may be prescribed by The Corporation of all moneys collected and 
disbursed, and accord to accountants and other representatives of 
The Corporation access to all books and papers, and render such 
assistance in the examination thereof as The Corporation may 
require. 

(H) Shall, in order to prevent speculation in freight or passenger 
space, exercise due diligence to see that all freight contracts show 
the name of actual shipper, commodities, qualities, and freight 
rates, except that in coastwise trade of the United States and in the 
West Indies trade the freight rate need not be shown on permits, but 
must be shown on bills of lading and must be the rate in current 
tariffs. Xo space allotted to the original shipper may be sublet on 
anv terms or conditions whatsoever without the consent of The 
Corporation. If The Operator shall, without the consent of The 
Corporation, knowingly carry any cargo, the space for which has 
been sublet by the original shipper upon any terms or conditions 
whatsoever, The Operator shall receive no commission, fee, or other 
compensation for any services rendered during the voyage. 

(I) Shall exercise due diligence to see that all bills of lading when 
issued agree with the freight contracts, that all wharf receipts for 
freight are nonnegotiable, and that a freight contract or permit is 
issued for each shipment. 

(J) Shall exercise due diligence to perform or cause to be per¬ 
formed all of the customarv agencv duties concerned with 

16 loading and discharging cargoes at all ports included in the 
vesseFs itinerary, and all things necessary for the protection 
and safeguarding of the interests of The Corporation. 

Fourth. The Corporation, in consideration of the services or 
things herein agreed to be performed, shall pay compensation and 
allow commissions and fees, as follows: 








I 

U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 13 
A. COMPENSATION PAYABLE TO THE OPERATOR 

I. On all vessels except tankers. 

(A) From United States ports: 

(1) On general cargo, a commission of percent on the gross 
ocean freight list. 

(2) On bulk cargo, a commission of 1% percent on the! gross ocean 
freight list. 

The term “bulk cargo’-, as used herein, shall include a cargo, a 
substantial part (amounting to 50 per cent or more) of which is 
loaded at one port and discharged at one port, when covered by one 
bill of lading, and delivery is made without regard tjo marks or 
numbers, and all United States Government cargoes, when vessel is 
exclusively laden therewith. Whenever the excess over such sub- 
stantial part is general cargo, the commission payable on general 
cargo as above shall be paid on the freight earnings on such excess. 
Where Government cargoes are carried, and no charge Or a nominal 
charge is made therefor, the commissions and fees shall be based 
upon a freight schedule established in each case by the United States 
Shipping Board for such purpose. 

(B) Into United States ports from foreign and dependency ports, 
a fee of $250 for each vessel. 

The term “dependency ports'’, as used herein, shall ihclude ports 
in the Hawaiian Islands, Porto Rico, Virgin Islands, Guam, Canal 
Zone, Philippine Islands, and Alaska. 

(C) From or into United States ports, one commission of 5 per 
cent on all mails, express, and commercial passenger revenue. This 
commission also covers all agency commissions and fees paid in 
foreign or dependency ports, except brokerages authorized to be paid 
under C-II. 

II. On tankers. 

Between United States ports and foreign and dependency ports, a 
fee of $100 for each vessel. 

B. COMMISSIONS AND FEES PAYABLE TO OTHERS THAN THE OPERATOR FOR 

UNLOADING, LOADING, AND ATTENDANCE AT FOREIGN AND DEPENDENCY 

PORTS 

I. ON ALL VESSELS INCLUDING TANKERS. 

(A) A commission or fee for agency services in accordance with 
the usual commissions and fees paid in the respective ports, as 
certified to the United States Shipping Board by the American 
Steamship Association, and verified by the comptroller; provided 
that any commission or fee paid for attending to any mail, express, 
or commercial passenger revenues shall be borne by The Operator 
out of the commission allowed him under A-l (C), supra, except 
the brokerages authorized to be paid under C—II. 

The same customary commission and fees of the Iport will be 
allowed the branch house of The Operator as would be allowed to 
others than such branch house. 


1430S1—37 


14 U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 

IT C. COMMISSIONS AND FEES NOT OTHERWISE AUTHORIZED 

I. In cases where freight and charter brokerages are necessarily 
or properly incurred in United States ports to secure cargoes and 
charters, and are paid in accordance with the usages of the trade, a 
brokerage commission not exceeding 1% per cent will be allowed. In 
such cases in foreign or dependency ports, freight and charter 
brokerages will be allowed in accordance with the usual commis¬ 
sions and fees paid in the respective ports, as certified to the United 
States Shipping Board by the American Steamship Association, and 
verified by the comptroller. 

II. In cases where passenger tickets are necessarily sold through a 
broker in foreign or dependency ports, a brokerage commission will 
be allowed in accordance with the usual commissions in the respective 
ports, as certified to the United States Shipping Board by the 
American Steamship Association, and verified by the comptroller. 

III. tf Tlie Operator is without funds of The Corporation to meet 
disbursements of the vessel in foreign or dependency ports, and 
funds are there advanced by The Operator, or procured from others, 
a commission will be allowed in accordance with the usual commis¬ 
sions paid in the respective ports, as certified to the United States 
Shipping Board by the American Steamship Association, and veri¬ 
fied by the comptroller. 

IV. For entering and clearing a vessel light or in ballast into and 
from United States ports from and to foreign or dependency ports, 
respectively, or into and from United States Atlantic ports from 
and into United States Pacific ports, respectively, a fee of $20 will be 
allowed. No fee will be allowed for entering or clearing vessels 
light or in ballast into and from United States ports from and into 
United States ports other than those above mentioned. 

V. If the vessel, after cargo is booked, is diverted by The Corpo¬ 
ration to a port other than that named or contemplated in the orig¬ 
inal shipping documents, no additional compensation will be paid on 
anv increase in freight earnings resulting from such diversion, but 
The Operator will be paid an additional fee of $250 for performing 
the services incidental and necessarv to the diversion. 

Fifth. Whenever The Corporation may legally have the advan¬ 
tage of existing or future contract of The Operator for the pur¬ 
chase of material, fuel, supplies, or equipment, it shall have the bene¬ 
fit thereof, provided that such contracts may be made available to 
The Corporation without unreasonably interfering with the require¬ 
ments of other vessels owned or operated by The Operator. 

Sixth. The Corporation shall reimburse The Operator for all dis¬ 
bursements properly incurred on its behalf as authorized in this 
agreement. 

Seventh. All salvages shall be for the benefit of The Corporation. 
This provision, however, shall not be construed to deprive The Op¬ 
erator of any right to salvage reserved to The Operator as vessel 
owner under anv charter. 

Eighth. The Corporation shall have the right at any time to ter¬ 
minate this agreement as to any or all vessels assigned to The Op¬ 
erator, and to assume forthwith control of any or all of the vessels, 
and to collect directly all freights, moneys, or other charges remain- 



U. S. SHIPPING BOARD YS. AETNA CASUALTY AND SURETY CO. 15 

0 

j 

ing unpaid. The Operator, however, in such cases shall adjust, settle, 
and liquidate the current business of the vessels if so required by 
The Corporation. 

18 Ninth. Upon giving The Corporation thirty dfiys’ written 
notice, The Operator shall have the right to terminate this 
agreement, said termination not to become effective as tb any vessel 
until its arrival and discharge at a United States porj:. The Op¬ 
erator shall, however, if required by The Corporation, adjust, settle, 
and liquidate the current business of the vessel. 

Tenth. The Operator shall, at the time of execution of this agree¬ 
ment, or at any other time, if so required by The Corporation, fur¬ 
nish a satisfactory bond in such amount as The Corporation may 
order for the faithful and proper discharge of the obligations and 
duties hereunder assumed. 

Eleventh. This agreement shall apply to the operation of all ves¬ 
sels assigned to The Operator, sailing from United States ports on or 
after the 1st day of March, 1919. 

United States Shipping Board 

Emergency Fleet Corporation; 

By Frank E. Ferris, 

For Director of Operations . 

SJH 

Sigsbee Humphrey & Company; Inc., 

By R. R. Sigsbee, President , 

The Operator . 

Witness as to signature: 

A. R. Simonel. | 

Witness as to signature: 

W. D. Stitt. 

Exhibit 3 

i 

The Aetna Casualty and Surety Company 
Hartford, Connecticut 

i 

i 

l 

Morgan G. Bulkeley, President 

j 

Treasurer’s Office j 

Know All Men by These Presents, That we, Sigsbee Humphrey 
& Company, of 23 South William Street, New York City, as prin¬ 
cipal, and The Aetna Casualty and Surety Company, a, corporation 
organized and existing under the laws of the State of j Connecticut, 
with an office and usual place of business at 100 William Street, 
Borough of Manhattan, City of New York, as surety, are held and 
firmly bound unto the United States Shipping Boar4 Emergency 
Fleet Corporation in the sum of Five Hundred Thousand ($500,- 
000.00) Dollars, lawful money of the United States, fojr which pay¬ 
ment well and truly to be made, we bind ourselves, our heirs, execu¬ 
tors, administrators, successors, and assigns, jointly a^.d severally, 
firmly by these presents. 





16 r. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 

Sealed with our seals and dated the 27th day of January 1920. 

Whereas, the United States Shipping Board Emergency Fleet 
Corporation has entered into an agreement with Sigsbee Humphrey 
& Company for the operating and/or managing of certain vessels 
heretofore "or hereafter assigned to said Sigsbee Humphrey & Com¬ 
pany. as Manager and/or Operators; and 

Whereas, the United States Shipping Board Emergency Fleet 
Corporation required Sigsbee Humphrey & Company to furnish a 
bond to save the said Corporation harmless against such pecuniary 
loss as the Corporation shall sustain by any act of fraud, dishonesty, 
forgery, theft, embezzlement, wrongful abstraction, or willful mis¬ 
application of any moneys or funds that may come into the pos¬ 
session or control of Sigsbee Humphrey & Company, during the life 
and by reason of the aforesaid agreement, and to properly account 
for, receive, and disburse said funds, including the prompt payment 
to the said Fleet Corporation, of the amounts required by the terms 
of the aforesaid agreement. 

Now, therefore, the condition of this obligation is such that if the 
above bounden Sigsbee Humphrey & Company shall well and truly 
save the said Corporation harmless against such pecuniary loss 
as the Corporation shall sustained by any act of fraud, dishonesty, 
forgery, theft, embezzlement, wrongful abstraction or willful mis- 
application of any moneys or funds that may come into the posses¬ 
sion or control of Sigsbee Humphrey & Company during the life 
and by reason of the aforesaid agreement, and shall properly ac¬ 
count for, receive, and disburse said funds, including the prompt 
payment to the said Fleet Corporation of the amounts required by 
the terms of the aforesaid agreement, and at the expiration or 
earlier termination of its position, shall faithfully account for and 
turn over to the said United States Shipping Board Emergency 
Fleet Corporation, any moneys, property, or other funds for which 
it may be accountable, then this obligation shall be void, else to 
remain in full force and effect. 

This bond is given subject to the following conditions: 

First. Upon the discovery by the Corporation of any evidence of 
the loss forming the basis of a claim hereunder, the Corporation 
shall give to the Surety, at its Home Office, immediate written notice 
thereof, with all available facts, and in any event within thirty days 
after such discovery, and shall afford the Surety every reasonable 
facility for investigating the same. Payment of any such loss shall 
be made by the Surety promptly, after receipt from the Corpora¬ 
tion of satisfactory statement thereof. Upon the payment of a loss 
the Surety shall be subrogated to all of the rights of the Corporation 
with respect thereto; and the Corporation will execute any and 
all papers reasonably required by the Surety to effectuate that 
purpose. 

20 Secondly. This bond may be cancelled at any time by either 
the Corporation or the Surety giving to the other thirty days’ 
written notice thereof; provided that as to any vessel on voyage 
at the time of giving such notice by the Surety and which voyage 
is not concluded before the date of cancellation mentioned in the 
notice, the bond shall continue in force until ten days after the end 
of such voyage, and terminate at the expiration of such ten day 
period. 







U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 17 

In witness whereof, the said Principal and the said Surety have 
hereunto set their hands and seals, the day and yeai: first above 
written. 

Sigsbee Humphrey & Company, 

ByR. R. Sigsbee, Prest. 

The Aetna Casualty and Surety Company, 

Vice President. 

By Wilmot M. Smith, Resident Vice President. 

Attest: 

H. D. Stitt, 

Secretary. 

Attest: 

Llewellyn H. Crossman, 

Resident Assistant-Secretary. 

The rate of premium on this bond is $4.00 per thousand; the total 
amount of premium charge is $2,000.00. 

(Stamps.) 

21 State of New York, 

County of New York , ss: 

On this 27th day of January, 1920. before me personally came 
Wilmot M. Smith, *to me known, who, being by me duly sworn, did 
depose and say: that he resides in the City of New York; that he 
is Resident Vice President of The Aetna Casualty and I Surety Com¬ 
pany, the corporation described in and which executejd the within 
instrument; that he knows the seal of said corporation;! that the seal 
affixed to said instrument is such corporate seal; that it jvvas so affixed 
by order of the Board of Directors of said corporation; that he 
signed his name thereto by like order; that he is acquainted with 
Llewellyn H. Crossman; that he knows him to be ithe Resident' 
Assistant Secretary of said Company; that the signature of the said 
Llewellyn H. Crossman subscribed to said instrument, i$ in the genu¬ 
ine handwriting of said Llewellyn H. Crossman and was thereto 
subscribed bv like order of the said Board of Directors, and in the 

%/ i 

presence of him, the said Wilmot M. Smith; and thatjthe Superin¬ 
tendent of Insurance of the State of New York hasj pursuant to 
Chapter 33 of the Laws of the State of New York for the year 1909 
constituting Chapter 28 of the Consolidated Laws of the State of 
New York known as the Insurance Law, as amended by Chapter 
182 of the Laws of the State of New York for the yeai* 1913, issued 
to The Aetna Casualty and Surety Company his certificate that said 
Company is qualified to become and be accepted as surety or guaran¬ 
tor on all bonds, undertakings, recognizances, guaranties and other 
obligations required or permitted by law; and that such certificate 
has not been revoked. 

Harold C. Megew, 

Notary Public. 

My Commission Expires-. 

At a regular meeting of the Board of Directors of The Aetna 
Casualty and Surety Company, duly called and held op the 28th day 
of December, A. D. 1911, the following By-Law was adopted: 



lg U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 

ARTICLE S. RESIDENT OFFICER, ATTORNEYS-IN-FACT AND AGENTS 

Section 1 . The President, any Vice-President or the Secretary 
may from time to time appoint Resident Vice-Presidents, Resident 
Assistant Secretaries, Attorneys-in-Fact and Agents to represent 
and act for and on behalf of the Company, and either the President, 
any Vice-President, the Secretary or the Board of Director's may 
at any time remove any such Resident Vice-President, Resident 
Assistant Secretary, Attorney-in-Fact or Agent, and revoke the power 
and authority given him. 

Section 2. Resident Vice-Presidents may, subject to the provisions 
and limits named in their certificate of authority, sign and execute 
on behalf of the Company any and all bonds and undertakings and 
other writings obligatory in the nature of a bond, and may bind 
the Company thereby as fully and to the same extent as the Presi¬ 
dent or any other Officer could bind it; Such bonds and undertak¬ 
ings, however, to be attested in every instance by a duly appointed 
Resident Assistant Secretary. 

Section 3. Resident Assistant Secretaries may, subject to the pro¬ 
visions and limits named in their certificate of authority, affix the 
seal of the Company to and attest on behalf of the Company any 
and all bonds and undertakings and other writings obligatory in 
the nature of a bond, and may bind the Company thereby as fully 
and to the same extent as the Secretarv or any other Officer could 
bind it; such bonds and undertakings, however, to be signed and 
executed in everv instance bv a duly appointed Resident Vice- 

_ • 1 * v A A 

President. 

Section 4. Attorneys-in-Fact may, subject to the provisions and 
limits named in their certificate of authority, execute and deliver and 
attach the seal of the Company to anv and all bonds and undertak- 
ings and other writings obligatory in the nature of a bond on behalf 
of the Company, and anv such instrument executed bv anv such 
attornev-in-fact when attested bv anv other Attornev-in-Fact shall 
be as binding upon the Company as if signed, sealed, and attested 
by any Officer of the Company. 

State of New York, 

County of New York , ss: 

I, Llewellyn H. Crossman. Resident Assistant Secretary of The 
Aetna Casualty and Surety Company, have compared the foregoing 
By-Law with the original thereof, as recorded in the Minute Book 
of said Company, and do hereby certify that the same is a true and 
correct transcript therefrom, and of the whole of said original 
By-Law. 

Given under my hand and the seal of the Company, at the City 
of New York, this 27th day of January, 1920. 

Llew’ellyn H. Crossman, 
Resident Assistant Secretary . 

22 I hereby certify that I am Secretary of Sigsbee, Humphrey 
& Company, Inc., and that at a Meeting of the Board of Direc¬ 
tors held at the office of the Company in the City of New York on 
the 27th day of January, 1920 the following resolution was unani¬ 
mously passed, all Directors being present: 







U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 19 


“Resolved that the President be, and he hereby is, authorized and 
directed to execute a Bond with the Aetna Casualty and j Surety Com¬ 
pany to the United States Shipping Board Emergency Fleet Cor¬ 
poration in the sum of Five Hundred Thousand Dollars”. 


[seal] 

H. D.. Stitt. 

- 

i Secretary. 

23 

Hartford, Connecticut 

Financial statement as of December SI, 19IS 



ASSETS LIABILITIES! 


Mortprape loans. 

Collateral loans. 

Stocks and bonds. 

Unpaid premiums subsequent to Octo¬ 
ber l, 1918. 

Unpaid premiums prior to October 1, 

1918. 

Cash in office and banks. 

Accrued interest. 

All other assets. 


$1,442,100.00 
G05,815.05 
6,591,985.15 

1,498,223. 70 

S4, 603. 31 
2.094,271.96 
131,330.82 
290. 250.84 


Total assets. 12.738.580. S3 

Deduct assets not allowed by insur¬ 
ance departments, viz: 

Unpaid premiums 
prior to October 1, 

1918. 84.603.31 

Other assets. 171.826.01 

- 256.429. 32 


Admitted assets on basis allowed by 
insurance departments. 12.482,151.51 


Premium reserve. i .$3,496,180.54 

C laim reserve.j. 2,997,002.49 

Reserve for accrued taxes.'. 368,347.62 

Reserve for other liabilities_1. 368,353.84 

Reinsurance in other Cos.j. 11,559.95 


Total liabilities except capital.. 7,241,444.44 

Surplus. 3.497j 136.39 

Less assets not allowed 
by insurance depart¬ 
ments .. 256,429.32 


Surplus on basis allowed 
by insurantedepart- 

ments_ 3.240,707.07 

Canital stock. 2.000.000.00 


5,240.707.07 


Total 


12,482,151.15 


t 


State of New York, 

County of New York, ss: 

Llewellyn H. Crossman being duly sworn, says: that he is Resident 
Assistant-Secretary of the Aetna Casualty and Surety Company 
and that, to the best of his knowledge and belief, the foregoing is a 
true and correct statement of the financial condition of daid Company 
as of December 31, 1918. 

Llewellyn H.| Crossman. 

Subscribed and sworn to before me this 27th day of January, 1920. 

Harold P. [Myers, 

Notary Public . 

My Commission expires-. 

24 -Etna Life Insurance Company. Accident and j Liability De¬ 
partment, Morgan G. Bulkeley, President. Thei -Etna Casu¬ 
alty and Surety Company. $500,000.00. On behalf of Sigsbee 
Humphrey & Company, in favor of United States Shipping Board 
Emergency Fleet Corporation. 

























20 U. S. SHIPPING BOARD YS. AETNA CASUALTY AND SURETY CO. 


25 Exhibit 4 

Form M03. 

United States Shipping Board Emergency Fleet Corporation 

Washington 


AGENCY AGREEMENT FOR MANAGING AND OPERATING STEEL CARGO VESSELS 

This Contract dated this Fourth day of March, 1920, between the 
United States of America, owner of certain vessels, represented by 
the United States Shipping Board Emergency Fleet Corporation, 
hereinafter called The Corporation, and Sigsbee, Humphrey & Co. 
Inc. managing agent, hereinafter called The Agent, witnessetli: 

1. The Corporation appoints The Agent as its agent for the man¬ 
agement, operation, and conduct of the business of such vessels as it 
has assigned and may assign to The Agent for such purposes. 

2. The Agent agrees to act as such agent and to manage, operate, 
and conduct the business of such vessels as have been assigned or 
may be assigned for such purpose. While The Agent is to be held 
responsible for the management of the vessels, he shall be subject to 
the orders of The Corporation as to all matters affecting the use of 
the vessels when The Corporation deems the exercise of such power 
to be in the public interest. 

3. The Agent agrees to man, equip, victual, and supply the vessel, 
to provide and pay for all provisions, wages,' fuel, fresh water, steve¬ 
doring, port charges, pilotage, agencies' commissions, consular 
charges, cabin, deck, engine room, and other stores, and all other 
costs and expenses incident to the management, operation, and con¬ 
duct of the business of the vessel except as is otherwise provided 
herein. 

4. The Agent shall (subject to such regulation or methods or 
supervision and inspection as may be required or prescribed by The 
Corporation) exercise reasonable care to maintain the vessel in a 
thoroughly efficient state in hull, machinery, tackle, apparel, furni¬ 
ture, and equipment, procuring for and on behalf of The Corpora¬ 
tion the necessary labor and material to effect ordinary running re¬ 
pairs and replacements. Xo extraordinary repairs or expenses shall 
be made or incurred and no alterations in hull, machinery, or equip¬ 
ment shall be made by The Agent except in cases of serious emer¬ 
gency without first securing in writing the authorization of The 
Corporation. 

5. The Agent agrees to exercise reasonable care to avoid damage 
of every nature and to see that no damage to the vessel arises from 
loading improper cargo, from improper stowage, or from improper 
berthing of the vessel, and to see that all freight is prepaid, except 
when otherwise instructed by The Corporation, or where the prevail¬ 
ing customs in the particular trade as to prepayment of freight is 
to the contrary, in which case the utmost diligence on the part of The 
Agent shall be exercised both as to the acceptance of the cargo and 






U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 21 

• i 

in the collection of the freight money; failing to exercise such dili¬ 
gence The Agent shall be liable therefor. 

6. The Agent agrees to perform all the customary duties of a 
managing and operating owner of the vessels, and to perform, or 
cause to be performed, all the customary agency duties concerned 
with loading and discharging cargoes at all ports included in the 
vessel’s itinerary and all things necessary for the protection and safe¬ 
guarding of the interests of The Corporation. 

7. The Agent agrees to issue, or cause to be issued, to shippers the 
customary charter parties, freight contracts, and bills of lading, ex¬ 
cept as otherwise prescribed by The Corporation, and shall exercise 
reasonable care to see that such bills of lading when not prescribed 
by The Corporation shall contain all exemptions and stipulations 
usual in the particular trade or service in which the vessel may be 
engaged and reserve to The Corporation a lien, etc., etc.. Adequate for 
its protection, including reference to the Harter Act, adjustments of 
general average, and Jason clause. 

8. The Agent, on behalf of The Corporation, agrees to collect at 
the proper time all freights and other moneys arising put of man¬ 
agement, operation, and business of the vessel and to advance all dis¬ 
bursements for customary cargo, managing, and operating expenses, 
and for all other reasonable expenses properly to be paicj. by a vessel 
owner, and to do all things which The Corporation is required in law 
and custom to do, either as owner of the vessels or as carrier of cargo. 

9. The Agent agrees to deposit all moneys collected on behalf of 
The Corporation in a national bank or a bank which is a member of 
the United States Federal Reserve Association as a separate trust 
fund in the name of the United States Shipping Boardf Emergency 
Fleet Corporation, which moneys shall be the property jof The Cor¬ 
poration; and whenever the treasurer considers the public interest 
demands thev shall be subject to check by the treasurer of The Cor- 
poration, as well as by The Agent, and shall not mingle the same 
with moneys owned or held by The Agent, but shall make from such 
fund all disbursements authorized to be paid by The Agent for the 
account of The Corporation and shall, at all times and in such 
form as may be directed by The Corporation, render a full account 
of all moneys received. No items aggregating more than $10 will 
be allowed in settlement with The Agent unless supported by proper 
vouchers. 

The compensation due The Agent shall be paid monthly on voucher 
from The Corporation. 

26 10. The Agent shall keep separate books of account in such 

manner and for as may be prescribed by, or approved by The 
Corporation, devoted exclusively to its agency business with The 
Corporation, which books, together with all the vouchees, accounts, 
papers, or other documents, shall at all times be subject to the 
inspection and audit of The Corporation; and, if need be for its own 
protection. The Corporation may at any time take possession of 
the same for a time sufficient to make a complete audit arid, in case of 
the termination of the agency, shall be entitled to possession of such, 
books and papers as it may deem to be necessary for itS safety and 
protection. i 

In the absence of some other agreed value, said accounts shall set 
up as the capital investment a sum equal to the value of jthe vessel as 


i 

i 




22 b T . S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 


the price of $200 per dead-weight ton. For the purpose of determin¬ 
ing net revenue under this agreement, the following charges shall be 
entered as part of the expenses of the vessel: Depreciation for the 
first year, 10 per cent of the value; for the second year, 9 per cent 
of the remaining value; third, 8 per cent; fourth, 7 per cent; fifth, 

6 per cent, and 5 per cent each year thereafter. For insurance, at the 
rate of 4 J /2 per cent per annum; for interest, at the rate of 5 per cent 
per annum; for reserve for repairs, at the rate of 4 per cent per 
annum. General average, collision, and other claims shall be charged 
to the vessel only to such extent as they are not completely covered 
and reimbursed by insurance. 

The value as set up on the books of the operators may be under¬ 
stood to be for bookkeeping purposes only, and such values may vary 
with the trades and may be the only variable item necessary by which 
equitable compensation may be computed with the object of ulti¬ 
mately placing all agents of equal competency so far as may be 
reasonably practicable on the same basis of compensation. 

11. As compensation! The Corporation shall pay The Agent as 
follows: 

(a) An agent's fee of $200 per ship per month. 

(b) For the period that any ship is in actual operation or in 
commission, and for the purpose of making monthly payments The 
Agent will receive a minimum compensation, in addition to the $200 
per month, of 10 cents per dead-weight ton per month on all ships 
under 5.000 tons (maximum $450 per ship per month), and 8 cents 
per dead-weight ton per month on all ships of 5.000 tons and under 
9,000 tons (minimum $450, maximum $700. per ship per month), and 

7 cents per dead-weight ton per month on all ships of 9,000 tons and 
over (minimum $700 per ship per month). 

(c) There may be such customary brokerage charged against the 
operation of the ships as may be necessary to obtain business, pro¬ 
viding the result of the voyage will justify same. In case of doubt 
or dispute as to whether the voyage does justify the charge The 
Corporation may finally decide as to continuing the payment of 
brokerage where doubt exists as to justification. 

(d) The Agent will also receive a commission equal to 10 per cent 
of all net profits on an amount up to 50 cents per dead-weight ton 
per month. On all net profits in excess of 50 cents per dead-weight 
ton per month, 20 per cent up to $1 per dead-weight ton per month 
and 25 per cent of all net profits in excess of $1 per dead-weight ton 
per month. 

12. The Corporation shall, when it may legally do so, have the ad¬ 
vantage of any existing or future contracts of The Agent for the 
purchase of materials, fuel supplies, or equipment, provided that 
this may be done without unreasonably interfering with the require¬ 
ments of other vessels owned or operated by The Agent. In every 
case where The Corporation shall have contracted for materials, 
fuel, supplies, or equipment The Agent shall procure the same in 
pursuance of such contract and the directions of The Corporation. 

13. All salvages shall be for the benefit of The Corporation and 
shall be considered as part of the earnings of the vessel. 





U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 23 

14. The Corporation shall have the right at any time to terminate 
this agreement as to any or all vessels assigned to The Agent and 
to assume forthwith control of any or all of the vessels and to collect 
directly all freights, moneys, or other charges remaining unpaid. In 
such cases, however, The Agent shall adjust, settle, and liquidate the 
current business of the vessels if so required by The Corporation. 

15. Upon giving The Corporation SO days’ written notice The 
Agent shall have the right to terminate this agreement, such termi¬ 
nation not to become effective as to any vessel until its arrival and 
discharge at a United States port. The Agent shall, however, if 
required by The Corporation, adjust, settle, and liquidate the current 
business of the vessel. 

16. The Agent shall, at the time of execution and delivery of this 
agreement or at any other time, if so required by The Corporation, 
furnish a bond satisfactory to The Corporation in such amount as 
it may order for the faithful and proper discharge of the obligations 
and duties hereunder assumed by The Agent. 

In witness whereof the parties hereto execute this contract in 
duplicate. 

United States of America, 

By United States Shipping Board 
Emergency Fleet Corporation, 

Bv G. W. Sterling, 

For Director of Operations, 
Sigsbee, Humphrey & Co., iNb., 

Agent. 

By R. R. Sigsbee, President. j 

Witness as to signature: j 

A. A. Haskell. i 

Witness to signature: i 

E. Goodman. i 

i 

i 

27 Exhibit 5 j 

Accident and Liability Department—Aetna Life Insurarice Com¬ 
pany. The Aetna Casualty and Surety Company, Autombbile In¬ 
surance Company, of Hartford, Connecticut. Morgan G. Bulkeley, 

President. John S. Turn, Secretary in Charge, New York Branch 

Office, 100 William Street 

New York, June f, 1920. 

Mr. G. W. Sterling, 

Asst. Director of Operation ?, 

United States Shipping Board . 

JfO Broadway , New York City , N. Y. j 

Dear Sir: We issued, under date of January 27th. 1920, bond in 
the amount of $500,000, on behalf of Sigsbee, Humphrey & Company, 
covering their managing and operating agreement with [the U. S. 
Shipping Board, Emergency Fleet Corporation. 

We understand that a new agency agreement has beenj executed, 
and that our consent as Surety is required in connection,! with this 
change. 

Please accept this letter as our consent to the change in the agency 
agreement, and our understanding that, as Surety, our bond covers 


24 U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 


the new agreement with the same force and effect as it did under 
the agreement previously guaranteed. 

Yours very truly. 

The Aetna Casualty & Surety Co.. 

By Llewelyn H. Crosman, 

LHC:Z Resident Vice President. 

28 Exhibit G 

[Form MO-4] (7067) 

United States Shipping Board 
Represented by 

L’nited States Shipping Board Emergency Fleet Corporation 

Washington 

AGENCY AGREEMENT FOR MANAGING AND OPERATING VESSELS 

This agreement, made in duplicate the tenth day of February 1921. 
between the United States of America, acting through the United 
States Shipping Board, represented by the United States Shipping 
Board Emergency Fleet Corporation, hereinafter called The Corpo¬ 
ration and Sigsbee, Humphrey & Co. Inc., hereinafter called The 
Agent, witnesseth: 

1. Appointment of agent. —The Corporation appoints the agent 
as its agent to manage, operate, and conduct the business of such 
vessels as it has assigned or mav assign to The Agent. 

2. Agent’s acceptance of appointment. —The Agent agrees to act 
as such agent and to manage, operate, and conduct the business of 
such vessels in accordance with the directions, orders, and regulations 
which The Corporation may from time to time prescribe. 

3. Manning, equipping, etc., vessels, and paying disbursements.— 
The Agent agrees to man. equip, victual, and supply such vessels, 
and to pay for account of The Corporation the cost thereof and all 
other costs and expenses incident to the management, operation, and 
conduct of the business of such vessels, except as is otherwise pro¬ 
vided herein. 

4. Maintenance and repairs. —The Agent shall (subject to such 
regulation or methods or supervision and inspection as may be re¬ 
quired or prescribed by The Corporation) exercise reasonable care 
to maintain the vessel in a thoroughly efficient state in hull, ma¬ 
chinery, tackle, apparel, furniture, and equipment, procuring for and 
on behalf of The Corporation the necessary labor and material to 
effect ordinary running repairs and replacements. Xo extraordinary 
repairs or expenses shall be made or incurred, and no alterations in 
hull, machinery, or equipment shall be made by The Agent, except in 
cases of serious emergency, without first securing in writing the 
authorization of The Corporation. 

The Agent shall encourage the practice of performing all possible 
repairs by the vessel’s crew, and when necessary to have repairs per¬ 
formed by repair companies shall encourage the practice of letting 
contracts for this work on competitive lump-sum bids. 

5. Agent must use care to avoid all damage and loss. —The Agent 
agrees to exercise reasonable care to protect and safeguard the in- 


U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 25 

j 

terests of The Corporation, the Shipping Board, and the United 
States in all respects and to exercise reasonable care to avoid loss and 
damage of every nature to The Corporation, the Shipping Board, or 
the United States. In judging the liability of The Agent under this 
paragraph the acts of subagents or brokers employed" by The Agent 
shall be deemed the acts of The Agent. 

6. Trades, bills of lading, etc. —The Agent agrees to operate said 
vessels in such service as The Corporation may direct and to issue to 
shippers the customary charter parties, freight contracts, and bills 
of lading, except as otherwise prescribed by The Corporation, and 
shall exercise reasonable care to see that such shipping documents 
when not prescribed by The Corporation shall contain all exemp¬ 
tions and stipulations usual in the particular trade of service in 
which the vessel may be engaged. 

7. Subagents subject to corporation’s disapproval.— The selec¬ 
tion by The Agent of agents or subagents in foreign and domestic 
ports shall be subject to disapproval by The Corporation. 

8. Collection of moneys. —The Agent agrees to collect when due 
all freight and other moneys accruing to The Corporation! arising out 
of the management, operation, and business of the vessels, and, in 
the event of the failure of any charterer, shipper, or other debtor 
of The Corporation, to pay promptly such moneys, to immediately 
notify the proper officers of The Corporation, and take siiich steps as 
may be proper to protect The Corporation’s interests. The Agent 
further agrees to do all things which The Corporation is required 
by law or custom to do either as owner of the vessels or ajs carrier of 
the cargo. 

9. Handling of moneys.— The Agent agrees to deposit! all moneys 
collected on behalf of The Corporation in a national bank or a bank 
which is a member of the United States Federal Reserve Association 
as a separate fund in the name of the United States Shipping Board 
Emergency Fleet Corporation, which moneys shall, in so far as The 
Agent is concerned, be the property of The Corporation; and when¬ 
ever the treasurer of The Corporation considers the public interest 
demands, they shall be subject to check by him as well as by The 
Agent; The Agent shall make from such fund all disbursements au¬ 
thorized to be paid by The Agent for the account of The Corpora¬ 
tion and shall, at such times and in such form as may be directed by 
The Corporation, render a full account of all moneys received. No 
items will be allowed in settlement with The Agent unless supported 
by proper vouchers or accountings. 

In case the amount of funds held by The Agent for Tljie Corpora¬ 
tion should be insufficient to meet the disbursements necessary on the 
vessels of The Corporation, The Agent may secure an advance from 
The Corporation which shall be deposited in the fund and accounted 
for in such manner as The Corporation may direct. 

10. Accounting and auditing. —The Agent shall keep separate 
books of account in such manner and form as may be prescribed or 
approved by The Corporation, devoted exclusively to the agency 
business with The Corporation, which books, together with all * 

vouchers, accounts, papers, or other documents shall at all 
29 times be subject to the inspection and audit of Tlje Corpora¬ 
tion; and The Corporation may at any time temporarily take 
possession of the same to make a complete audit; and, in case the 

i 

I 

i 




26 U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 


agency is terminated, may retain possession of such books and papers 
as it may deem advisable. The Agent shall furnish statements and 
reports when called for by The Corporation, and in the form pre¬ 
scribed by The Corporation, and shall generally conform its account¬ 
ing to the directions of The Corporation. 

11. Compensation. —iThe Corporation shall pay to The Agent as 
full compensation for The Agent’s services hereunder as follows: 

(a) From United States ports.—Five percent on gross outward 
freight, dead freight, demurrage, express, and mail revenue; pro¬ 
vided that 2y 2 per cent only shall be paid on full cargoes of coal, 
grain, sulphur, and phosphate, regardless of the number of ports 
of loading or discharge and regardless of the number of bills of 
lading or consignees; and provided further that 2y 2 per cent only 
shall be paid on full cargoes of other commodities shipped from one 
shipper to one consignee, from one port of loading to one port of 
discharge, to be accepted by the ship and delivered without count 
or marks. 

(b) Into United States ports.—Two and one-half per cent on 
gross inward freight, dead freight, demurrage, express, and mail 
revenue, the minimum inward fee at each port where cargo is dis¬ 
charged to be $250. 

(c) Between United States ports.—The provisions of (a) and (b) 
above shall govern, except as to the full cargoes mentioned in (a), as 
to which The Agent shall receive only two and one-half per cent 
(214%) on the gross freight, dead freight, and demurrage, and no 
fixed minimum inward fee. 

(d) Between ports other than United States ports.—Two and one- 
half per cent on gross freight, dead freight, demurrage, express, and 
mail revenue. 

(e) Ballast voyages.—Five dollars per day on ballast voyages, 
minimum fee $50, except in New England coal trade between United 
States ports north of Cape Hatteras minimum shall be $25; days to 
be counted from clearance to entrv of vessel; when a vessel calls en 
route for orders, fuel, repairs, or any other cause, the time between 
entry and clearance at such ports of call en route not to count. 

(f) Compensation while under repairs, etc.—For each period the 
vessel is laid up for repairs, inspection, or survey. The Agent shall 
receive $25 per vessel per day for each day beyond the first 10 days 
of that period. Where repairs, inspections, or surveys are made 
while the vessel is loading or discharging cargo, ballast, or bunkers, 
the time so spent shall not count as lay days. 

Actual traveling expenses incurred by The Agent shall be paid 
him and shall be chargeable to the voyage account if the vessel is 
laid up elsewhere than at the home port of The Agent. 

(g) Passenger revenue.—Ten per cent on gross-passenger and 
excess-baggage revenue, provided, however, that 5 per cent only shall 
be paid on gross-passenger and excess-baggage revenue derived from 
carrying passengers on cargo vessels, as provided in section 26 of the 
Merchant Marine Act of 1920. 

(h) Salvage.—Five per cent of all salvage earned for account of 
the vessel for salvage services rendered to vessels not owned or con¬ 
trolled by the United States Shipping Board, or The Corporation, 
and 2*4 per cent on all salvage earned for account of the vessel for 
salvage services rendered to vessels of the United States Shipping 



U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 27 

i 

Board, or The Corporation. The amount of salvage awards for such 
last-named services shall be determined by The Corporation, and all 
negotiations for settlements of other salvage claims shall be in the 
control of The Corporation. 

(i) Branch houses of The Agent.—Compensation for agency serv¬ 

ices of Agent’s branch houses is provided for below in paragraph 12, 
subdivision (b). j 

(j) United States ports, as used above, means United |States con¬ 
tinental ports, not including Alaska or the Panama Canal Zone. 

(k) The commissions provided for above upon the grpss freight, 
dead freight, demurrage, express, mail, passenger, and excess-bag¬ 
gage revenue, and salvage shall be paid only on revenue actually col¬ 
lected, except where The Agent at The Corporation’s Request car¬ 
ries governmental cargo on which no freight is to be collected; final 
control over the compromise, settlement, or waiver of disputed claims 
for gross freight, dead freight, demurrage, etc., to be with The 
Corporation. 

12. Brokerage commissions, etc. —There shall be charged against 
the vovage account: 

(a) Freight, passenger, and charter brokerage in casps where it 
is necessarily and properly incurred to secure cargoes, passengers, or 
charters in accordance with the usages of the trade. 

(b) The customary fees and commissions for all ports jin the ves¬ 
sel’s itinerary where these charges are necessarily and properly in¬ 
curred. For agency services rendered by branch houses of* the agent 
in foreign and dependency ports, The Agent shall be paid and there 
shall be charged against the vovage account the customarv fees and 
commissions for those ports, as specified in the schedule of fees and 
commissions for foreign and dependency ports adopted bV The Cor¬ 
poration March 1, 1920, as the same may be revised from time to 
time. Revisions shall not be made without 15 days’ notjice to The 
Agent. For agency services rendered by branch houses of !The Agent 
in United States ports The Agent shall be paid and there shall be 
charged against the voyage account the customary fees foil such serv¬ 
ices in those ports until such time as The Corporation shall adopt a 
schedule for such fees, and when said schedule is adopted it shall 
govern, as adopted and revised from time to time. 

But. unless said schedule expressly so provides, fees sljall not be 
paid for agency services in United States ports where the vessel en¬ 
ters to load or discharge cargo, ballast, or passengers, cjr undergo 
repairs, inspection, or survey, in addition to the compensation in 
those cases already provided for in subdivisions (a), (b)j, (c), (e), 
(f), and (g), under section 11 above, headed “Compensation.” 

13. Use of each other's contracts by the corporation and 
agent. —The Corporation shall, when it may legally do so, have the 
advantage of any existing, or future, contracts of The Ag^nt for the 
purchase of materials, fuel supplies, or equipment; provided, this 
may be done without unreasonably interfering with the requirements 
of other vessels owned or operated by The Agent. In £very case 
where The Corporation shall contract or shall have contracted for 
materials, fuel, supplies, equipment, or services, such as those of the 

American Bureau of Survey, the Insurance Syndicates, or 
30 other similar services, The Agent shall procure the same in 
pursuance of such contract and shall pay for the s?ime in ac- 





28 u. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 


cordance with the directions of The Corporation; provided, that 
when necessary to avoid undue delay to vessels. The Agent may, sub¬ 
ject to The Corporation’s approval first obtained, procure materials, 
fuel, supplies, equipment, or services from other sources at lowest 
obtainable costs. The Agent in such cases shall support its disburse¬ 
ments with satisfactory explanation to The Corporation. 

14. General average—Particular average.— In case of general or 
particular average. The Agent agrees to appoint an adjuster, ap¬ 
proved by The Corporation, and to assist the adjuster in preparing 
the average account, to take proper security for the cargo propor¬ 
tion of average, and to take liens and all other possible measures to 
protect the interests of The Corporation. For such services The 
Agent shall receive the customarv fee. the amount of which will be 
determined jointly by The Agent and the adjuster, subject to the 
approval of The Corporation. 

15. Bond.— The Agent agrees, whenever required by The Corpora¬ 
tion, to furnish a bond satisfactory to The Corporation for the faith¬ 
ful performance of The Agent’s duties and obligations hereunder. 

16. Termination of agency.— (a) The Corporation shall have the 
right at anv time to terminate this agreement as to any and all ves- 
sels assigned to The Agent and to assume control forthwith of any 
or all of said vessels and to collect directly all freight monevs or 
other debts remaining unpaid. 

(b) Upon giving The Corporation 30 days’ written notice. The 
Agent shall have the right to terminate this agreement, such termina¬ 
tion not to become effective as to any vessel until its arrival and dis- 
charge at a United States port. 

In cases of termination under either (a) or (b). The Agent shall, 
if required by The Corporation, adjust, settle, and liquidate the 
current business of the vessels. 


IT. Retroactive to March 1 . —This agreement is in substitution 
of, and herebv abrogates, the agreement made effective March 1, 
1920. and known as Form MO. 3, and all rights and obligations of the 
parties under said Form MO. 3 are hereby canceled and this present 
agreement is made retroactive to March 1, 1920, except as may be 
otherwise mutual l y agr ee d by The C o rporat i on and The Agent, and 
noted he r eon in wri t ing, ever the s ignat u r e s of the p ersons a u thorized 


The 


a r> d K a A 

cCTIvC TUTIv CTj 


as to vessels that sailed subsequent to March 1st, 1920 and which 
completed their round voyage (U. S. to a foreign port and return to 
U. S.) prior to the signing of this agreement. 


31 18. Interpretation of this agreement. —Any question aris¬ 

ing under this agreement may, at the option of either party 
hereto, be referred for recommendation to a committee known as the 


Standing Committee on Managing Agents’ Agreement, consisting of 
first, duly appointed representatives of The Corporation; second, 
duly appointed representatives of the American Steamship Owners 
Association, the United States Ship Operators Association, North¬ 
west Steamship Managers Association, The Pacific-American Steam¬ 
ship Association, the Gulf Shipping Conference (Inc.), the South 
Atlantic Conference. The determinations of this committee shall be 


only in the form of recommendations to The Corporation, the final 
decision to be left to The Corporation. 







U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 29 

I 

In witness whereof, the parties hereto have executed this contract 
in duplicate the day and year first above written. 

United States of America, 

By United States Shipping Board, 

Bv United States Shipping Bc^ard 
•/ 

Emergency Fleet Corporation, 

By W. S. Benson, President. 

Attest: 

[seal] John Flaherty, Secretary. 

Sigsbee, Humphrey & Co. Inc., 

By R. R. Sigsbee, Prest ., Agent,. 

Witness: 

Katherine Koetz. | 

i 

32 Exhibit 7 

! 

Accident and Liability Department—Aetna Life Insurance Company, 
The Aetna Casualty and Surety Company, Automobile Insurance 
Company, of Hartford, Connecticut. Morgan G. Bulkeley, Presi¬ 
dent, John S. Turn, Secretary in Charge, New York Branch Office, 
100 William Street. 

New York, N. Y., June loth, 1921. 

United States Shipping Board 
Emergency Fleet Corporation, 

JJ Broadway , City. 

Re: S-40839 Sigsbee Humphrey & Co. 

i 

i 

Gentlemen : Referring to bond in the sum of $500,000.00 executed 
under date of January 27th, 1920, on behalf of Sigsbee Humphrey & 
Co. in favor of the U. S. Shipping Board Emergency Fleet Corpora¬ 
tion, please be advised that as Surety we consent to the change in 
operators contract covered by this bond to form M-04] and agree 
that the liability under our bond will not be impaired through this 
change in said agreement. 

Yours very truly, 

W. M. Smith, 
Resident Vice-President. 

Diet. W. M. Smith. 

HA 

33 Exhibit 8 

j 

Aetna Casualty and Surety Company—Statement of account under indemnity 
bond given as surety for Sigsbee , Humphrey <£ Co ., Inc ., managing operator 
of U . S . Shipping Board vessels under M - 2 , 0 - 2 , MO - 3 , and MO-\4 agreements , 
period from January 27 , 1920 , to May Ilf , 1921—Summary 


Schedule 

Description 


Amount 

1 

Unauthorized withdrawals from trust fund under M-2 and 0-2 Agreements. 


$286.45 

2 

5 

Unauthorized withdrawals from trust fund, amounts obtained from United States 
Shipping Board Merchant Fleet Corporation under excess claims, and credits 
for cash returned and for compensation actually earned under MO-3 Agreement. 
Unauthorized withdrawals from trust fund under MO-4 Agreement.j. 

j 

Total due from Surety.i. 

169,438.40 

844.94 

17a 549.79 


1430S1—37-3 













Schedule #1. — Aetna Casualty and Surety Company;—Statement covering unauthorized withdrawals by Sigsbee Humphrey it* Co 
from U. S. Shipping Hoard Merchant Fleet Corporation Trust Fund during period from January 27, 1920, to May 14, 1921, covered 
by indemnity bond—Charges under M-2 and 0-2 agreements 


30 U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO 



























IT. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 31 

I 

35 Schedule #2. —Aetna Casualty and Surety Company—Suyimary state¬ 
ment covering unauthorized withdrawals by Sigsbee , Humphrey <£ Co., 
Inc., from United States Shipping Board Merchant Fleet Corporation 
Trust Fund amounts obtained from U. S. S. B. M. F. C. under excess 
claims, credits for cash returned, and for compensation actually earned 
under MO-3 agreement, period from January 27, 1920, to May 14 , 1921, 
covered by indemnity bond—charges and credits under MO-3 agreement 


Sched¬ 

ule 


Debit 

Credit 

3 

Amount of unauthorized withdrawals from Trust Fund account of 
commissions claimed by the Managing Operator—withdrawals 
made prior to application for an advance of $250,000.00 and with¬ 
out knowledge or consent of the United States Shipping Board 
Merchant Fleet Corporation..... 

$192,890. (39 

250.000. |X> 

! 



Amount advanced to Sigsbee. Humphrey and Co.. Inc., by U. S. S. 
B. M. F. C. on February 19, 1921, by reason of excess claims for 
commissions alleged to have been earned under MO-3 Agreement 
(N. Y. R. T. A. P1-57-AJV N3-942) and without disclosure by 
Managing Operator of unauthorized withdrawals mentioned 
above.-. 



Reimbursement to U. S. S. B. M. F. C. by deposit in Trust Fund 
March 7, 1921. 

$ 120 , 000.00 

a 142,865.60 

b 10,586.59 
169,438.40 

4 

Credit due Managing Operator (but not recorded) for compensa¬ 
tion actually earned under MO-3 Agreement. 

i 


Credit due Managing Operator account of management fees and 
commissions earned in connection with Voyage 2-52, 2/14/20— 
5/21/20. of S. S. West Lashaway, operated under M-2 and 0-2 
Agreements: 

Management Fees—Mar. 1 -May 22 (6:15 P. M.) at 

$400.00 per Mo. $1,080.78 

Operating Commission (2^>% of freight revenue, 

$380,232.33)... 9.505.81 

i 


Balance due U. S. S. B. M. F. C. 







442,890. f9 

442,890.59 


Note A.—See supporting Schedules Nos. 4, 4-A, 4-B, 4-C, and 4-C-l to 4-C-9, inclusive, for a detail of 
compensation due Sigsbee, Humphrey & Co., Inc., under MO-3 Agreement. 

Note B.—Management fees covering months of March and April 1920 were taken from Trust Fund under 
date of June 3. 1920—see checks #827 and 828. The operating commission in amount of $9,505.81 was with¬ 
drawn under date of March 3,1920—see check #468. Invoices covering same were submitted in accounting 
Jacket #76875. They were disallowed as being improper charges in voyage account. The Algent was directed 
to reimburse the Trust Fund and submit bills direct to U. S. Shipping Board. Accordingly bills covering 
Management Fees were submitted direct and paid by U. S. Shipping Board as follows: j 


D. V. 23539, Pay Vo. 38236, Check 103955, 7/22/20. J. $280.78 

D. V. 26127, Pay Vo. 39648, Check 105876, 8/10/20. 4 . 400.00 

D. V. 26228, Pay Vo. 39641, Check 105876, 8/10/20.]. 400.00 


After receipt of above, the amount of $800.00 withdrawn from Trust Fund account of management fees under 
date of June 3.1920, was restored under date of Aug. 11, 1920. We have no record of the Agent ever having 
billed direct for the operating commission and the disallowance of same in voyage accounting remained in 
effect until 3/9/21 when the Agent decided he was entitled to compensation under the MO-r3 Agreement and 
accordingly restored to Trust Fund not only the operating commissions in the amount of $9,505.81. but 
management fees which had been paid to him direct as above, in amount of $1,0S0.7S. T^is resulted in an 
open credit appearing in the Managing Operator's Control Account in the amount of $1*080.78 which was 
cleared on U. S. S. B. Books by an erroneous entry—See AJV N3-1244. However, inasmuch as the voyage 
is now in question as to whether it is accountable under M-2 and 0-2 or MO-3 Agreement, we have not 
restored either management fees or operating commission to credit of Agent on U. S. S. Bj Books, but have 
given effect to same in above statement. 


i 

I 


i 


i 























32 U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 


36 Schedule #3. —Aetna Casualty and Surety Company—Statement of un¬ 
authorized icithdraicals from U. S. S. B. M. F. C. trust fund by Sigsbee, 
Humphrey and Co., Inc., account of commissions and fees claimed under 
the MO-3 agreement 


Dates 

of 

■with¬ 

drawal 


Check 

nos. 


5/5/20 
5/5/20 
5/5/20 
5 / 22/20 
6/3/20 
6/29/20 
6/30/20 
7/6/20 
8/5/20 
8/5/20 
8 / 6/20 
8 / 11/20 
8/13/20 
8/24/20 
8/25/20 
9/2/20 
10 / 2/20 
12/27/20 


795‘ 


(i 

707 


964 

965j 

Refund 


s. s. 

Cabegon. 
voy. 1-52 
<fc 1-53. 
4/27/29- 
1/7/21 

I 

S. S. 
Con- 
sho- 
hocken. 
voy. 
1-50. 
3/22- 
5/28/20 

S. S. 
Eastern 
Dawn, 
voy. 
1-51, 
7/1- 
11/7/20 

I 

s. s. 1 s. s. 

Jadden, j Salaam, 
voy. voy. 

2-51. 1 1-50, 

5/25- | 7/29— 
10 / 21/20 | 12 / 6/20 

I 

S. S. 
West 
Lasha- 
way, 
voy. 
3-53. 
5/22- 
11/16/20 

S. S. 
West 
Segovia, 
voy. 
1-53, 
8 / 6 - 
12 / 10/20 

s. s. 

West 

Zeda. 

voy. 

2-53, 

4/25- 

11 / 10/20 








171. 24 

$103.13 







595.30 
10 . 000.00 
S36. 62 
5.000.00 






warn 

.... 

! 







900.00 
: 15.000.00 
900.00 

1 . 


551.61 

_ 


268.25 



. 



. 



900.00 








... . 


12 . 000 . 0 O 
900.00 




651.61 
4.400.00 


929.99 


886.24 


900.00 

4.300.00 




. 

174.19 
551.61 

. 







. 

. 


. 




18,000.00 

_ 

7.500.00 


17.500.00 

mm 


. 1 . 



900.00 

573.33 

312. S9i 936. 29 
900. (X) 900.00 


754.84 
900.00 
24.000.00 

900.00 

596.67 




22. 500.00 


wmmmmmmmmm 





i 41.954.74 

12,131.92 

' 

20 .403.32 

15.187.08 24.336. 29 

1 

11,354. 49 

25.654.S4j41.S67.91 


Total 


171.24 
103.13 
595.30 
10 . 000.00 
3.456.48 
20 . 000.00 
3.600.00 
20 . 000.00 
12.000.00 
4. 267. 84 
8 . 700.00 
174. 19 
551.61 
43. 000 .00 
27.000.00 
5.604.02 
5.670.00 
46. 500.00 


192.890.50 


37 Schedule #4 .—Aetna Casualty and Surety Company—Statement of com¬ 
pensation earned by Sigsbee. Humphrey and Co., Inc., under terms of the 
M. O. 3 agreement 


Vessel 

Voy. 

no. 

Voyage dates 

, 

Agent’s 

fees. 

Sched. 

“4-A” 

Mini¬ 

mum 

compen¬ 

sation, 

Sched. 

“4-B” 

Share in 
profits 
computed 
on basis of 
individual 
voy. 

Sched¬ 

ule 

Total com¬ 
pensation 
earned 
under 

M. O. 3 
agreement 

Cabegon. 

Do. 

Conshohocken. 

Eastern Dawn. 

Jadden... 

1- 52 

2- 53 
1-50 

1- 51 

2- 51 
1-50 

4/27-7/14/20. 

7/15-1/7/21.. 

3/22-5/28/20. 

7/1-11/7/20. 

5'26-10/20/20. 

$516.99 
1.154.84 
445.17 
846.67 
967.74 
858.06 

1.171.19 
832.26 

1.306. 67 

1.628.81 
2.574. 19 

1,616.49 
2.478.60 
2.799.99 
2.697.30 
1.982.72 
2,716.11 

3.286. 67 

3.394.75 
12.276.84 
1,942.51 
11,169.08 

4-C-l 

4-C-2 

4-C-3 

4-C-4 

4-C-5 

4-C-6 

4-C-7 

4-C-8 

4-C-9 

$5.540. 55 
16.005.87 
4.004.17 
14.494.35 
3. 767. 73 
34.376.57 
3,153.91 
46.074.91 
15.447.54 

Salaam 

7/29-12/6/20. 

30.821.21 

42.526. 54 
10.854.20 

West Lashaway. 

West Segovia. 

West Zeda. 

Totals. 

3-53 

1- 53 

2- 53 

5/22-11/16/20. 

S/6-12/10/20. 

4/25-11/10/20. 

8,099.59 

21,780.88 | 

112,985.13 


a 142,865.60 




■ ■ 


Note A.—The amount of $142,865.60 represents total compensation earned by Sigsbee, Humphrey & Co., 
Inc., under the MO-3 Agreement and includes a share in profits figured on the basis of individual voyages 
(commissions earned on profitable voyages only—same not affected by losses sustained on other voyages) 
and with valuation of $ 200.00 per D. W. T. for purpose of computing fixed charges set as of vessel construction 
date, that is, date of delivery to Division of Operations—not March 1 , 1920, nor Mar. 4, date that MO-3 
Agreement was signed by this Operator. Fixed charges are included as items of expense for full period 
each vessel remained in the hands of the Managing Agent—that is, from date of delivery under the MO-3 
Agreement to date of redelivery in those cases where no subsequent voyages were undertaken under terms 
of the MO-4 Agreement and redelivery made prior to 2/10/21. In those cases where subsequent voyages 
were made under terms of the MO-4 Agreement the termination date of MO-3 Agreement was set at the 
end of the repair period following the voyage under the MO-3 Agreement. 




































































U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO 33 


3S Schedule #4-A. — Aetna Casualty and Surety Company —j Agent's compen¬ 
sation due Sigsbee, Humphrey and Co., Inc., as per paragraph A, article 
#11, MO-3 agreement — $200.00 per month 


Vessel 

Voy. 

no. 

Voyage period 

Cabegon. 

1-52 

4/27-7/14/20. 

Cabegon . 

2-53 

7/15/20-1/7/21. 

Conshohocken 

1-50 

3/22-5/2S/20. 

Eastern Dawn 

1-51 

7/1-11/7/20... 

Jadden. 

2-51 

5/26-10/20/20. 

Salaam. 

1-50 

7/29-12/6/20. 

West Lash- 

3-53 

5/22-11/16/20. 

away. 

West Segovia. 

1-53 

8 / 6 - 12 / 10/20 . 

West Zeda.... 

2-53 

4/25-11/10/20. 

Total 





May & June 1920. 
July 1-14, 1920... 


Aug.-Dee., incl., 1920.. 
Jan. 1-7, 1921. 


April. 

May 1-28, 1920. 


4/30 of $200.00...J. $26.67 

2 mos. @ 200.00 ..j. 400.00 

14/31 Of 200 . 00 .. J. 90.32 

17/31 of 200.00... j. 109.68 

5 mos. @ 200.00..J. 1.000.00 

7/31 of 200.00_ j. 45.16 

10/31 Of 200.00_ J. 64.52 

1 mo. @ 200 . 00 ...!. 200.00 

28/31 of 200.00_I. 180.65 


Nov. 1-7, 1920. 


4 mos. @ 200.00...L 
7/30 of 200.00. i. 


June-Sept., inch, 1920.. 
Oct. 1 - 20 , 1920. 


6/31 of 200,00.j. 

4 mos. @ 200.00.. J. 
20/31 of 200.00 L 


800.00 
46.67 


38. 71 
800.00 
129.03 


Aug.-Nov., inch, 1920. 
Dec. 1 - 6 , 1920. 


June-Oct.,inch, 1920.. 
Nov. 1-16, 1920. 


Sept.-Nov., inch, 1920. 
Dec. 1 - 10 , 1920. 


May-Oct., inch, 1920.. 
Nov. 1-10, 1920.. 


3/31 of 200.00.1 19.35 

4 mos. @ 200.00...j. 800.00 

6/31 of 200.00.[ 38.71 

10/31 of 200.00_l 64.52 

5 mos. @ 200.00...1 1,000.00 

16/30 of 200.00_i 106.67 

26/31 of 200.00_i 167.74 

3 mos. @ 200.00..4 600.00 

10/31 of 200.00_| 64.52 

— 

6/30 of 200.00. i 40.00 

6 mos. @ 200 . 00 ...; 1 , 200.00 

10/30 of 200.00_ 4 66.67 


Agent’s 

Fees. 



$516.99 

1,154.84 

445.17 
846.67 

967.74 

858.06 

1,171.19 

832.26 

1,306.67 


$8,099.59 


Note.— Above figured in accordance with accounting instructions for Managers arid/or Operators and 
Managing Agents of vessels of the United States Shipping Board Emergency Fleet j Corporation issued 
under date of 7/15/20, effective March 1,1920—See General Comptroller’s Order #69. Extract from foregoing 
reads as follows: “These bills shall be rendered for each calendar month. In the case of a vessel accepted for, 
or released from management during the month, the amount of the Agent’s fee will be the proportion of $200 
represented by the ratio of days managed to the number of days in that month. As $n illustration, for a 
vessel accepted on March 14th. the Managing Agent would be entitled to receive 18/31 df $200.00, or $116.13; 
on a vessel accepted June 14th, however, he would be entitled to receive 17/30 of $200.00, or $113.33.” 





























































Schedule #4—B. — Aetna Casualty and Surety Company—Minimum compensation due Sigsbee, Humphrey and Co., Inc., as per 

paragraph B, article till, of No. 3 agreement ___ 


34 


r. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO 


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36 U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 


41 Schedule #4-C-l. — Aetna Casualty and Surety Company—Statement of 
commission earned by Sigsbec, Humphrey and Co., Inc., on net profits 
as per paragraph D, sec. 11, MO-3 agreement —S. S. Cabegon, voyage 
1-52, .'i/27-7/lJ(/20 


Reference 

1 

Expenses 

Revenue 

Jkt. 231407. 

Freight Revenue..... 


165,144.10 

231407 

Vovage Expense......$62,926.95 

$61.405.32 

1,275.60 
516.99 
1,628.81 

77.658.21 

233226. 

' Less items applicable to voy. 2-53 (attached). 1.521.63 

Voyage expense—items charged to voy. 2-53 but applicable 
to vov. 1-52. 

Schedule 4-A_ 

Schedule 4-B_ 

Schedule 4-D_ 

1 

Balance—X 

Agents Fees..... 

Minimum Compensation.... 

Daily Fixed Charges. Period 4/27-7/14/20 Incl—79 days 
<& $983.0153. 

et Profits........ 

142.4S4.93 
22.659.17 

165,144.10 

0 

$165.144.10 

165,144.10 


FORMULA 


D. W.T. 

No. days 
in voyage 

h of year 

Net profits 

Rate 

Agents 

commis¬ 

sion 

8,756 > 

< 79 > 

< 12 = 22,741.61 D. W. ton months. 





365 




22,741.61 

D. W. T. monthsX.50=811,370.81 Maximum amount of net 





i profit on which commis¬ 

sion is chargeable at 10%... 

$11,370.81 

10% 

$1,137.08 


22,741.61 

D. W. T. monthsX.50= 11,370.81 Maximum amount of net 





profits in excess of above 
on which commission is 
chargeable at 20%. 

11,2SS. 36 

20% 

2,257.67 







$22.659.17 


3,394. 75 







Commission is chargeable on 






net profits in excess of sum 
of two foregoing amounts 
at rate of 25%. 











































U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 37 

> 

42 Schedule #4—C— 2 . —Aetna Casualty and Surety Company 4 —Statement of 
commission earned by Sigsbee, Humphrey and Co., Inc., oh net profits as 
per paragraph D, sec. 11, Mo-3 agreement — S. S. u Cabegom\ voyage 2-53. . 
7/15120-1/7/21 


Reference 


Jkt. 223451. 

Demurrage Revenue.. $63,835 00 

223226.. 

Less amount cancelled in settlement with Pol- 41.590.25 
ish Government. 

Freight Revenue. 

223226. 

Voyage Expense__ 133,432 85 

231407. 

Less items applicable to Voyage 1-52 (See 1,275.60 
Detail #1 attached). 

Voyage Expense—Items charged to Voyage 1-52 but appli¬ 
cable to Voy. 2-53 (attached). 

Voyage Expense—Items paid direct by N. Y. Dist. Office, 
U. S. S. B. 

Loss on Foreign Exchange ... 

108619_ 

5907-N3-277. 

Schedule iW-A... 
Schedule #4-B... 
Schedule #4-D... 

Balance—Net 
Profits. 

Agents Fees...... 

Minimum Compensation... 

Daily Fixed Charges. Period 7/1.5-1/7/21 incl —177 days 6 } 
$983.0153. 




Expenses 


4 - 


132.1$7.25 

1, 521.63 

11.75 

U7.80 

1.154.84 

2. 574.19 
173.9^3. 71 


311. 521.17 
69,4§8.43 


$381,0(j9 


.60 


Revenue 


$22,244. 75 
358, 764.85 


381,009.60 


381,009.60 


FORMULA 


D. W.T. 

No. days 
in voyage 

M 2 of 
year 

Net profits 

Rate 

Agents 

commis¬ 

sion 

8.756 ) 

< 177 1 

X l $$65= 50,952.72 D. W. T. months.. 




50,952.72 X .50 

= $25,476.36 Maximum amount of net prof¬ 
its on which commission is 
chargeable at 10%.. 

$25,476.36 

25,476.36 

18,535. 71 

10 % 

20% 

25% 

J_ 

$2,547.64 

5,095.27 

4,633.93 

50.952.72 ) 

< .50 

= $25,476.36 Maximum amount of net prof¬ 
its on which commission is 
chargeable at 20%. 

Commission is chargeable on 
Net Profits in excess of sum 
of two foregoing amounts at 
rate of 25%. 


$69,488.43 . 

19 

12,276.84 































38 U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 

43 Detail #1 Supporting Schedule #4-C-2.—S. S. Cabcgon—Voyage 1-52 , 

4/27-7/14/20; voyage 2-55, 7/15/20-1/7/21 


Items reported in accounting:—Voyage 1—”2 covers expense applicable to 
Voyage 2-53: Jacket #231407—Voyage 1-52: 

Form #5541—New York—$1,154.86 

Vo. 51 Sigcsbee Humphrey & Co.—Telegrams & Cables- $10. 91 $6. 90 
61 “ —Telephone Calls- 16. 50 2. 45 


Form #5541—New York—$1,154.86 


$9. 35 


124 Atlantic Coast Shipping Co. (Norfolk) Discharging Ballast 

7/17-7/19_ 1,512. 2S 


1. 521. 63 

Items reported in accounting—Voyage 2-53 covers expense applicable to Voy¬ 
age 1-52, Jacket #233226: 

Form #5541—New York—$79,376.07 


Vo. S White Swan Laundry—Ships laundry—7/12/20-$215.89 

41 Voyage Payroll—7/10-11/30/20 $23,109.98 * (See be¬ 
low )_ 606. 64 

47 Supplemental Payroll—7/10-8/19/20 $1,892.01 * (See 

below)_ 325.69 

4S Expenses incurred by Master—$96.59_ 8. 50 

_ £2 _ 156. 72 

Form #5541—New York—$14,109.72 

179 Health Dept.—Fumigation—7/3/20- 11S. SS 


1,275.60 


•DETAIL OF VO. 47-WAGES FOR PERIOD 7/10-7/14/20 



Jno. Berg. Bos'n. 

L. Stiebel, A. B. 

F. Zanello, Steward. 

N. Grovanin. Cook. 

Casavechia. 2nd Cook. 

P. Emilo, 3rd Cook. 

B. J. Zieverink. Messman. 

Wm. Check. Messboy. 

H. Ellerbrock, 1st Asst. Engr. 
W. Schwarty. 2nd Asst. Engr. 

H. Genzer. Oiler. 

S. Flacilati, W. T. 

M. Paschual, Fireman...-_ 


Wages Overtime Total 


15. S3 

14.17 
22.50 

19.17 

16.67 

11.67 
11.67 

2.17 
38.13 
33.33 
15.83 
9.00 
15.00 


$225.14 


































U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 39 

i 

44 Detail #1 Supporting Schedule #4-C-2. —-S'. S. Cabegon—Voyage 1-62, 

4/27-7/14/20; voyage 2-63, 7/15/20-1/7/21 

* Detail of Vo. 1,1—Wages for perioe7il0-7m 



Wages 

Overtime 

—1 - 

Meal 

Allowance 

1 

Total 

A. F. Dohlstedt, Master. 




10.50 


A. Hansen. Mate..... 

7.63 





A. E. Rasch, 2nd Mate... 

33.33 



9.00 


J. C. Heller, 3rd Mate. 

17.63 



3.00 


Jno. Inglefos, Carpt. 

10.00 



2.25 


Karl Magi, A. B. 

14.17 



6 . 75 


Wm. Hansen, A.B.._.. 

8 . 50 



2.25 


J. Panchin, A.B.. . .. 

14. 17 



6 . 75 


D. Sarvis, A. B. 

5.67 





A. Passantino. A.B... 

14. 17 



6.75 


S. HersominolT, A.B... 

14.17 



6.75 


B. Paolo, A.B. 

14.17 



6 .75 


M. Gabel. O. S. 

10. S3 



6.75 


G. Gino, O. S__ 

10.83 



6 . 75 


P. L. Panticelli, O. S. 

2.17 





Jn. Shack, 0. S. 

2.17 





E. Greenberg, Radio._. 

12.50 



3.00 


H. Schutter, Messman... 

4.67 





R. Schmidt, Messbov. 

2.17 





A. Ferinando, Messboy...„. 

10.83 



6 . 75 


j. Smith, Chief Engr. 

55. 42 



10.50 


Wm. Desmond. 3rd Asst. Engr. 

29.38 

11.20 


9.00 


J. S. Meehan, Dk. Engr. 

16.67 

1.20 


6.75 


N. L. Hunter. Oiler. 

9.50 



2.25 


Wm. Bazin. Oiler._. 

9. 50 



2.25 


F. Sorrillo. W. T. 

15.83 



6.75 


A. Eriken, W.T . ... . . 

15.83 



6.75 


J. M. Sharron. Fireman... 

9.00 



2.25 


E. Rierpe, Fireman. 

9.00 



2.25 


W'm. Kelty. Wiper... .. 

7.50 



2.25 


F. Pavne, Wiper. 

7. 50 



2.25 


Jno. Kelty....... 

2.50 






456.99 

12.40 


137.25 

606.64 


Note.— Jacket #233226 covering voyage disbursements, voyage 2-53— Form 5541, New York— $79,376.07— 
vouchers 1-35 incl. with exception only of vos. 8, 11, 21. 30,32, 33, and 34, cover purchase! of vessel supplies 
between dates 7/8 and 7/14/20 in total amount of $5,232.49. This period falls within the period of voyage 
1-52 but these supplies are not reflected in inventory taken at end of voyage 1-51 (no dates sblown on inventory 
and it is assumed that inventory was taken prior to 7/8/20 in which event it is proper to include these supplies 
in voyage 2-53 expense, although to obtain a correct statement of net profits as between the two voyages, 
some sort of adjustment should be made charging back to voyage 1-52 any supplies consumed between date 
inventory was taken and end of voyage 1-52 period— 7/14/20. 



















































40 t T . S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 


45 Schedule #4-0-3. — Aetna Casualty and Surety Company—Statement of 
commission earned by Sigsbee, Humphrey and Co., Inc., on net profits 
as per paragraph D. section 11. M. O. 3 agreement — S. S. Conshohoeken, 
voyage 1-50. March 22-May 2S, 1020 


Reference 


Expenses 

Revenue 

Jacket 231577 . . 

Freight Revenue.. .. .. . . 


162,450.00 

Jacket 231577. 

Jacket 231577. 

Jacket 39451. 

Schedule 4-A_ 

Schedule 4-B_ 

Schedule 4-D_ 

Balance— 
Net Prof¬ 
it . 

Voyage Expense ... $55.170.70 

Less items applicable to Construction period 
(trial trip; (See Details *1 and #2 attached) . 1.886.81 

$53,283. SO 

6.78 
445. 17 

1. 616. 49 

91.589.00 

Voyage Expense paid directly by Philadelphia Office, 
u. S. S. B . . . 

Agents’ Fees. .j.„_..._............................ 

Minimum compensation ... 

Daily fixed charges. Period 3/22-5/28/20, incl.— 68 days @ 
$1,346.8971 . 


146.941.33 

15,508. 67 

162,450.00 



$162*450.00 

1 

162,450.00 


FORMULA 


Net profits 

Rate 



$11,592.26 

3.916.41 

10% 

20% 


D. W. T. 


No. days 
'in voyage 


M 2 of year 


10.375 

X 

68 

X 1 rif> s = 

23.194. 

52X 

50e 

= $11,592.26 

23.194. 

52X 

50 

= 11,592.26 


23.194.52 D. \V. Ton Months. 

Maximum amount of net profit on 
which commission is chargeable at 

10 %. 

Maximum amount of net profits in 
excess of above on which commis¬ 
sion is chargeable at 20%. 

Commission is changeable on all net 
profits in excess of sum of two fore¬ 
going amounts at rate of 25%. 


Agent’s 

commis¬ 

sion 


1.159.23 
783.28 































U. S. SHIPPING BOARD VS. AETNA CASUALTY AND 


SURETY 


CO. 41 


46 


Detail #1 Supporting Schedule #4-C-3.—S. 8. Conshohocken—Voyage 
1-bO, March 22-May 28, 1920 , expenses prior to formal delivery of ves¬ 
sel as of March 22, 1920, applicable to construction period atrial trip) 

Jacket #231577 


Voy. 


1 

2 

3 

5 

7 

11 

12 

13 


32 

35 

41 

42 

45 

46 


Form 5541—Chester, Pa. (Construction) $1,561.70 

i 

Payroll 2/26-3/3/20. S27S. 3|0 

Pavroll 3/4-3/10/20..-. 37S. $7 

Payroll 3/11-3/17/20. 463. 74 

Capt. Theo. Von Beck—Expenses.. 30. 95 

Sun Shipbuilding Co.—Express on canvas slings.. 20. 70 

Sigsbv, Humphrey & Co.—Phone & telegrams, 

$22.85. ------- ..... 8. 1;0 

Sigsbv, Humphrey & Co.—Expenses Marine 

Supt., $51. 44--_ . 3$. $1 

Sigsby, Humphrey & Co.—Expenses Supt. En¬ 
gineer, $54.00- 33. 07 $1, 252. 04 

Form 5541—New York, $27,731.59 

I. Horowitz—Pav Vo. 3/20-4/14/20, $71.00_ 9. 00 

Pavroll 3/20-4/10/20, $3,838.07 (Detail attached). 411. 44 

N.' Jansen—Pay Vo. 3/20-4/12/20, $77.60:- 9. 07 

D. J. McDevitt—Pay Vo. 3/20-4/12/20, $62.20—. 8. 33 

A. F. Baker—Pav Vo. 3/20-4/1/20, $89.88.. 20. lb 

Payroll 3/18 & 3/19/20... 175. 38 634. 77 

i - 

$1, 886. 81 


47 


Detail #2 Supporting Schedule #4-C-3.—8. 8. Conshohocken—Voyage 

1-bO, March 22-May 28, 1920 


Jacket #231577—Voucher #35, Payroll March 20-April 10,1920, S3,S3S.C 

7 

Name and rating 

Overtime 

Wages 

Meal 

lowar 


Room al¬ 
lowance 

Period 3/20 & 3/21/20 chargeable to Construction: 

HPhpn Van MflStfiF._-_....__ 


23.83 

7 

.00 

3.00 

A TT kf Officer _ 


15.25 

6 

.00 

3.00 

T V Tohn^nn OfTicpr _ _ _ ----- 


13.33 

< 

.00 

3.00 

T. TT A/Tatthpvu*; 3rd Offippr _ __.... 


11.75 

e 

.00 

3.00 

■p at r'hri«t»n>sAn. Carnenti>r __ _ 


6.67 

3.oo 

1.00 

A T.nnd ___ ----- 


6.33 

3.00 

1.00 



5.67 

3.00 

1.00 

TT Sahalfts. A . B . _........ —........ 

$1.20 

5.67 

3.00 

1.00 

O ’RlnmnniQt A B _ 

5. 67 

3.00 

1.00 

w 5 Cour \ P - - _- -_ 


5.67 

3.00 

3.oo 

1.00 

Wm SnvHpr A B _....... 


5.67 

1.00 



5.67 

3.00 

3.00 

1.00 



5. 67 

1.00 

T T C.hnmhprlain. O. S_ _ _ _... 


4.33 

3 

.00 

1.00 

H McNallv OS . 


4.33 

3 

.00 

1.00 



4.33 

3.00 

1.00 



8.33 

6.00 

3.00 

r. T Piorr^ Ch. T*!ncr _ 


22.17 

7 

.00 

3.00 

L P Walsh 1st Asst ... 


15.25 

GOO 

3.00 

T P Mrwirp 9nH Asst. _........ 


13.33 

GOO 

3.00 

A Tom at in St Or\r_ ? ___ 


6.33 

3.00 

1.00 

TT Pptpr^nn. T). Knpr _ _ 


6.67 

3.00 

1.00 

P P RdndTvn. W T __ _ 


6.33 

3.00 

1.00 

T. T RpTid?vn. W T _ -- 


6.33 

3.00 

1.00 



6.33 

3100 

1.00 

AT Oil«r - __ _ _ 


6.33 

3L00 

1.00 

VL r TiiRnn Pi ram an _ 


6.00 

3L00 

1.00 

Toe YfoYfflnftmin. Winer - . _ 


5.00 

3|.00 

G00 

1.00 

A. Gruber, Steward. 


9.00 

3.00 


$1.20 

247.24 

11G00 

- 1 - 

47.00 


Total, $411.44. 
























































42 U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO 


4S Schedule #4-C-4. — Aetna Casualty and Surety Company—Statement of 
commissions earned by Siysbee, Humphrey and Co., Inc., on net profits 
as per paragraph D. sec. 11, MO-3, agreement —S. S. Eastern Daicn, 
voy. 1-31. 6/30/20 {Midnight)-11/8/20 {12:01 A. M.) 


Reference j 

Expenses 

Revenues 

JKT 223452 .... 

Demurrage revenue. 36.194.43 


$25. 237.44 
294.460. 49 

JKT 233122 

Less reduction made in settlement with Polish 
Government. 10.956.99 

Freight Revenue.... 


JKT 233122. 

Voyage Expense.-. 

S103.S87.80 
116.30 
846.67 
2.478.60 

152,285.41 

5907 X 3-277 . 

Loss on foreign exchange. 

Schedule 4-A_ 

Schedule 4-B_ 

Schedule 4-D_ 

I 

Balance—X 

! 

Agents Fees ....-. 

Minimum Compensation... 

Daily fixed charges. Period 7/1-11/7/20 incl.—130 days @ 
SI.171.4262. 

et Profit.... 

259.614. 78 
60.083. 15 

319.697.93 


319.697.93 

319. 697.93 


FORMULA 


D. W. T. 

No. of 
days in 
voyage 

1/12 cf year 

9012 

X130 > 

<12/365 = 38517.04 D. W. T. months 

38517.04X. 50c 

= 19258.52 Maximum amount of net profits 
on which commission is charge¬ 
able at 10%. 

3S517. 

MX. 50c 

= 1925S. 52 Maximum amount of net profits 
in excess of above on which 
commission is chargeable at 

20%. 

Commission is chargeable on all 
net profits in excess of sum of 
two foregoing amounts at rate 
of 25%. 


Net 

profits 

Rate 

Agents 

commis¬ 

sion 

19.258.52 

10% 

1.925.85 

19.258.52 

20% 

3.851.70 

21.566.11 

25% 

5.391.53 


60.082.15 





































U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 43 


49 Schedule #4-0-5 .—Aetna Casualty and Surety Company—Statement of 
commissions earned by Sigsbee, Humphrey and Co., Inc., on net profits 
as per paragraph D, sec. 11, MO-3 agreement —S. &. Jadden, voy. 
2-o 1 May 25 to October 21, 1920 


Reference 


Expenses 

Revenue 

Jkt. 233121.. 

Freight Revenue. 

J 

164,225.50 

Jkt. 233121. 

Voyage Expense.$94,390.49 

$89,052.86 

1$.75 

208. 36 
967.74 
2,799.99 
191,656. 72 

Jkt. 233121. 

JP 1-11106 (AJV 
N3-1537). 

5907 N3-277. 

Less items applicable to period prior 5/25/20 5,337.63 

(See Detail #1 and #2 attached). - 

Government transportation paid direct by U. S. S. B. 

Loss in Foreign Exchange... 

Schedule 4-A 

Agents Fees. 

Schedule 4-B. 

Minimum Compensation.. .. 

Schedule 4-D. 

Balance—Net Loss. 

Daily fixed charges. Period 5/26/20-10/20/20—148 days @ 
1294.978. 

284,701 

1.42 

164,225.50 
120,475.92 




$284,701 

L 42 

284,701.42 


FORMULA 


D. W. T. 

No. of 
days in 
voyage 

1/12 of year 


9958 ) 

D. W. Tons Mos. 

49.107.95 

49.107.95 

< 150 

X 12/365 = 49,107.95 D. W. T. months. 

X 50c=$24,553.98 Maximum amount of Net Profits oil which commis¬ 

sion is chargeable at 10%. 

X 50c X 24,553.98 Maximum amount of Net Profits in excess of above on 

which commission is chargeable atj20%. 

Commission is chargeable on Net Pjrofits in excess of 
sum of two foregoing amounts at itate of 25%. 

-- 


Note.— The deduction from vessel expense as shown above in the amount of $5,337.63 covers wages and 
service charges during period May 11-24. Inasmuch as inventory was taken May 13 the various supply 
invoices covering purchase of stores and supplies for voyage 2-51 were allowed to remain a£ a charge against 
voyage but attention is called to the fact that to arrive at exact cost figure some allowance would have to be 
made for consumption of fuel and supplies during this period. 


50 


Detail #1 Supporting Schedule #4-C-5. — S. £. Jadden—Voyages 2-51, 
May 25-October 21, 1920, items reported in accounting—Jacket 233121, 
applicable to period prior to May 25,1920 

Form #5541—Norfolk Disbursements S53,276.54 


Vo. 


8 

9 

10 

11 

12 

13 

16 

36 

38 

41 

42 


14 

16 


Lamberts Point Towing Co.—Docking & Shifting, 

5/15/20. $420. 64 

H. G. Tyler & Co.—Dunnage, 5/17/20_ 153. 03 

Wood Towing Co.—Towing Service, 5/18/20- 350. 00 

Wood Towing Co.—Towing service, 5/17/20- 315. 48 

Wood Towing Co.—Towing service, 5/14/20- 207. 74 

Jos. M. Clark & Bro.—Fresh Water, 5/18/20- 5. 00 

U. S. Railroad Administration—Wharfage, 5/17- 

5/19. 108. 31 

Hampton Roads Water Co.—Fresh Water, 

5/15/20..-. 112.30 

A. M. Cousins—Watching ship, 5/8-5/19/20- 132. 00 

Sigsbee, Humphrey & Co.—Payroll Period, 5/11— 

5/24 (Attached).... 3, 252. 05 

N. P. News Ship Watching Co.—Watchmen, 5/25_ 66. 00 
W. T. Watkins—Noting Protest, 5/22- 7. 00 

I 

Form #5541—New York Disbursements, $34,234.57 

Masters Expenses—$127.82—(Period prior 5/25) _ 16. 50 

J. G. Gillespie—Travel expenses in connection 

with repairs--- 191.38 


5,129. 75 


207.88 


$5, 337. 63 































44 t'. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 


51 Detail #2 Supporting Schedule #4-0-5. — Detail of voyage 38, pay 

roll period May 11-21} 1020 


E. G. Hellston, Master. 

S. O. Femstrom, Ch. Officer.. 

J. O. SiUivold. 2nd Officer. 

J. T. Brush. 3rd Officer. 

F. Green. Carpt. 

L. B. Hanson. Bos’n. 

A. Olsen. A. B. 

H. Sokoloff, A. B. 

H. Crowley, A. B. 

E. Christensen. A. B. 

C. Tennet. A. B. 

O. Olser. A. B. 

J. Yanks. A. B. 

J. Bonafaira. A. B. 

C. S. Alinonv, O. S. 

M. Fulton. O. S. 

A. Baranko, O. S. 

L. Watson. O. S. 

L. Price. Radio. 

D. O'Brien. A. B. 

H. M. Avinster. A. B. 

C. S. Stewart. O. S. 

G. L. Tweed. S. 

F. J. Cantin. Steward. 

T. Elm, 1st Cook. 

Y. Palianis. 2nd Cook. 

F. G. Buerke. Galleyman. 

C. H. Montgomery. Messman. 
C. Hill, Messman. 

H. Liles. Messman. 

F. Gregory, Messboy. 

W. Robies. Messman. 

Geo. Ruuth, Ch. Engr. 

W. J. Field. 1st Asst. Engr_ 

W. Horat, 2nd Asst. Engr. 

E. Greenhalgh, 3rd Asst. Engr 

R. Montgomery. Deck Engr.. 

A. Huber. Oiler. 

J. Joyce. Oiler. 

S. Lindsav, Oiler. 

F. J. Larkin. W. T. 

R. L. Mason, W. T. 

E. J. Gahazin, W. T. 

R. Delgardo, F. M. 

H. Delagardia, F. M. 

C. N. Hairfield. F. M. 

H. Herbert. Wiper. 

J. Ridder, Wiper. 

R. Farrson. Wiper. 

C. M. Hairfield. Wiper... 

N. Constantino. F. M. 

J. Mora in as. Wiper... 

H. Alex, Deck Engr. 

G. Georgiades. F. M. 

A. Green, Night Engr. 


Wages 

Overtime 

Meal 

allowance 

$166. S3 


$17.50 

106.75 


15.00 

93.33 


15.00 

82.25 


15.00 

46. 57 

$4.80 

11.25 

44.33 

7. 50 

11.25 

39. 67 

7.50 

11.25 

39.67 

7.50 

11.25 

39. 67 

7.50 

11.25 

39.67 

7.50 

11.25 

39.67 

7. 50 

11.25 

36.83 

7.50 

11.25 

36. S3 

7.50 

11.25 

36. S3 

7.50 

11.25 

28.17 

7.50 

11.25 

28.17 

7.50 

11.25 

23.83 

6.30 

11.25 

19.50 

6.00 


5K.33 


15.00 

1.42 



1.42 



1.08 



1.0S 



63.00 

22. SO 

15.00 

53. 67 

19.80 

11.25 

43.33 


11.25 

32. 67 

17.50 

11.25 

32.67 

17.50 

11.25 

32. 67 

17.50 

11.25 

32. 67 

13. 50 

11.25 

30.33 

17.50 

11.25 

2.33 

1.00 


155.17 


17.50 

61.00 



93.33 


15.00 

82.25 


15.00 

3.33 



44.33 

2.40 

11.25 

as. oo 

4.80 

11.25 

38.00 

4.80 

11.25 

44.03 

9.60 

11.25 

44.33 

9.60 

11.25 

44. as 

9.60 

11.25 

42.00 

9.60 

11.25 

2.00 


2.25 

24.00 

4.80 

11.25 

32.50 

6.30 

11.25 

32.50 

6.30 

11.25 

2.50 


2.25 

12.50 



42.00 

9.60 

11.25 

5.00 


4.50 

30.00 


2.25 

IS. 00 

4.80 


180.20 


mmmmmrtl 













































































U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURjETY CO. 45 

53 Schedule #4-C-6 .—Aetna Casualty and Surety Company-^Statemcnt of 
commissions earned by Sigsbee, Humphrey and Co., Incon net profit 
ass per paragraph D, see. 11, MO-*l agreement —S. &. Salaam, voyage 
1—60. 7/29/20-12/6/20 


Reference 


Jkt. 223453. 

Jkt. 233228. 
Jkt. 23322$. 

Jkt. 23322S. 
Jkt. 233228. 
Jkt. 233228. 


Schedule 4-A. 
Schedule 4-B. 
Schedule 4-D. 


Demurrage Revenue.$50,004.52 

Less: Reduction made in settlement with 
Polish Government. 3.881.52 


Freight Revenue. 

Voyage Expenses. 118,945.44 

Less: 

Items Chargeable to Subse¬ 
quent Voyage (See Detail #1 

attached). 173.47 

Items Chargeable to Construc¬ 
tion of Vessel (See Detail #1 

attached). 3,730.01 

Items Chargeable to Marine 
Insurance (See Detail #1 at¬ 
tached).$1,471.21 5,374.69 


Agents Fees. 

Minimum Compensation. 

Daily Fixed Charges period 7/29-12/6/20—131 days at $1,134.- 
9591. 


Expjense 


113, 570.75 


858. 06 
2,(97.30 


148. 


J79. 


64 


Revenue 


46,123.00 
358,028.26 


Balance—Net Profit. 


265,805. 75 
138,5f45. 51 


404,151. 26 


$404.151. 26 j 404,151.26 


+ 


FORMULA 


D. W. T. 

No. days 
in voyage 

1/12 of year 

Net profits 

Rate 

Agent’s 

commis¬ 

sion 

8,727 X 

131 X 

12/365 = 37,651.G3 D. W. T. Months. 




37,651.63 D. W. T. MonthsX.50g=$18,825.81 Maximum Amt. of net 






profit on which commis¬ 
sion is chargeable at 10%. 

$18, 825.81 

10 

1,882.58 

37,651.63 D. W. T. MonthsX.5W=$18,825.81 Maximum Amt. of net 





profit in excess of above 
on which commission is 






chargeable at 20%. 

18,825.82 

20 

3,765.16 



Commission is chargeable 



on net profit in excess of 
sum of two foregoing 
amounts at rate of 25%... 

100,693.88 

25 

25.173.47 




$136,345. 51 


30,821.21 


Note.— Inventory of stores and supplies was taken November 23, 1920. Consequently all purchases 
subsequent to that date were charged to Voyage 2-51— See Accounting Jkt. 112303. To arrive at a true 
statement of net profits for Voyage 1-50, the actual consumption of stores and supplies during 11/23-12/6/20 
should be charged back to Voyage 1-50. 


143081 — 37 - 


4 






































46 U. S- SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 


54 Detail #1 Supporting Schedule #4-C—6. — Steamship “ Salaam ”, voyage 

1-50 . July 29-December 6, 1920 

Items of Vessel Expense included in Accounting—Jkt. #233228—Applicable to 
Construction Period (Trial Trip): 

Form #5541—Bristol Disbursements—$4,007.98 


Vo. 160 Payroll 5/29-6/ 4/20.-. $182. 75 

161 Pa'vroll 6/ 5-6/11/20. 294 00 

162 Payroll 6/12-6/18/20. 294. 00 

163 Payroll 6/19-6/25/20. 294 00 

164 Payroll 6/26-7/ 2/20. 401. 71 

165 Payroll 7/ 3-7/ 9/20. 444 79 

166 Payroll 7/10-7/16/20. 598. 60 

171 Payroll 7/17-7/23/20. 692. 73 

168 Payroll 7/24-7/29/20—$757.78* (See Below). 494 83 

167 Masters Expenses..... 4 65 

172 Masters Expenses 7/9-7/22/20. 27. 95 


-$3, 730. 01 

Items of Vessel Expense included in Accounting—Jkt. #233228—Applicable to 
Subsequent Voyage: 

Form #5541—Norfolk Disbursements—$26,735.53 


Vo. 19 J. W. Price, Chief Engnr.—Expenses—$17.56_ 8. 81 

Form #5541—Philadelphia Disbursements—$417.79 

Vo. 184 Sigsbee, Humphrey & Co., Inc., Expenses Supt. 

Engnr_ 41. 14 

185 Sigsbee, Humphrey & Co., Inc., Expenses Marine 

Engnr-- 5. 90 

Form #5541—New York Disbursements—$5,428.15 

Vo. 202 W. C. Demuth, Pay Voucher 11/22-12/10/20— 

$201.40..1. 42.40 

203 Masters Expenses 11/24-12/11/20— $14.00. 4 85 

204 Ko Hung, Pay Voucher 12/8-12/10_ 13. 75 

206 W. B. McMillan’s Sons, Repairing Blocks 12/9/20. 37. 62 

207 Edmund Leigh, Guarding Ship 11/29 (4 P. M.)- 

12/10/20 (8 A. M.)—$109.25. 19. 00 


- $173. 47 

Items of Vessel Expense included in Accounting—Jkt. 

#233228—Applicable to Insurance: 

Form #5541—New York Disbursements—$1,471.21 


Vo. 225 P. N. Grav & Co., Demurrage on lighters. 124 62 

226 Payroll 12’/3-12/7/20.... 1,346.59 


-$1, 471. 21 

•DETAIL OF VO. 168—PAYROLL FOR PERIOD 7/24-7/28/20 



P. L. Larsen, Master. 

E. Ham berg, 1st Off. 

J. Salo, 2nd. Off. 

J. W. Price, Ch. Engnr. 

J. W. Welsh, 1st Asst. Engnr.. 

C. E. Streed, 2nd Asst. Engnr. 

D. Robin, 3rd Asst. Engnr_ 

A. Gruber, Steward. 


Wages 


$59.58 
38. 13 
33.33 
55. 42 
38.12 
33.33 
29.42 
22.50 


Meal 

allowance 


Room 

allowance 










































U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 47 

Schedule #4-C-7. —Aetna Casualty and Surety Company—Statement of 
commissions earned by Sigsbee, Humphrey and Co., Inc., on net profits, 
as per paragraph D, sec. 11, MO-3 agreement — S. S. West Lashaway, 
voyage 1-33, May 23 to November 16. 


Reference 


Jkt. 233227. 
Jkt. 233227. 



Expense Revenue 


Freight Revenue—Outward.....$154,938.00 

Freight Revenue—Inward. 6,334.18 


Jkt. 233227. 

5907 N3-1062.... 
O/A Statement. 


5907 N3-649. 


Voyage Expense. $83,628.90 


$161,272.18 


Jkt. 69078. 


Schedule 4-A... 

4-B... 

4-D... 


Disbursements reported as General Average. 

Disbursements made by G/A Adjustors: 

F. S. Martin, Valuation of Vessel. 50.00 

Cost of lithographing statement & petties.. 20.00 

Adjustors fee. 350.00 

Retainer fees paid by Foreign Agents, Henry - 

Coe & Clerici for legal services in connection 
with various suits placed against this vessel 
at Venice by consignees due to delay in arrival 

of vessel. 

Voyage expense—paid direct by N. Y. District 

Office. 

Agents, fees. 

Minimum compensation. 

Daily fixed charges, Period f 131 days at 962.2738. 126,057.87 
5/22-11/16/20—180 days\ 48 days at 838.1162 40,229.58 


15.098.19 


420.00 


$ 00.00 

115.00 
1,171.19 
1,982.72 


5/22-11/16/20—180 days\ 48 days at 838.1162 40,229.58 166.287.45 


Balance—Net Loss. 


269,103.45 


161,272.18 

107,831.27 


269. ^03.45 269.103. 45 


FORMULA 


D.W.T. 


No. days 1/12 
in voyage of year 


Net 

profits 


Agent’s 

commis¬ 

sion 


8.578X 180X 12/365 = 50,762.96 

50,762.96 D.W.T. MonthsX.50<=$25,38l.48 


50,762.96 D.W.T. MonthsX.50*=$25,381.48 



D.W.T. Months. 

Maximum amount of Net 
Profit on which commission 
is chargeable at 10%. 

Maximum amount of Net 
Profits in excess of above on 
which commission is charge¬ 
able at 20%. 

Commission is chargeable on 
Net Profits in excess of sum 
of two foregoing amounts 
at 25%. 


Note 1.—Demurrage revenue at loading port was reported in accounting, Jacket n<}. 223801, in amount 
of $19,478.40, same was not collected by the Managing Operator but account was transferred to books of 
General Office. The Demurrage change was reaudited and reduced to $18,786.51 and set up as an account 
receivable against the New River Collieries Co., in the latter amount. The account receivable was referred 
to the Legal Department for collection and same is still in litigation. The claim is characterized as being 
of a doubtful nature and is not included in the revenues earned as shown above. It is, not sufficient, how¬ 
ever, to wipe out the net loss shown above if considered as revenue earned and consequently its elimination 
does not affect the compensation due the Operator on this voyage unless it should be decided to pay commis¬ 
sion only on net profits of all voyages under M. 0.-3 Agreement. j 

Note 2.—Turbine couplings brake June 17,1920. Vessel arrived Gibraltar June 19, (6:30 A.M.) and was 
under repairs till July 31 (2 P.M.) General Average was declared. No General Average collections were 
ever made account decision in Italian Court, acting in matter, declaring that vessel was in unseaworthy 
condition and thus sustaining consignees claims to damages account delay in arrival of cargo. Therefore 
entire expense account General Average which was not insured and which has not been recovered is included 
in above as per article 10 of MO-3 Agreement. 































48 S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 

56 Schedule #4-C-S .—Aetna Casualty and Surety Company—Statement of 
commissions earned by Siffsbee, Humphrey and Co., Inc., on net profits 
as per paragraph D. sec. 11, MOS agreement — S. S. West Segovia, 
voyage 1-oS. August 0 to December 10 


Reference 


Expense 

Revenue 

Jkt. 223454. 

Jkt 233761 

Demurrage Revenue—Polish Govt.. $69.507.71 

Less reduction made in settlement with Polish 9.679.42 

Government. - 

Salvage award (vessel’s proportion)._ 


59, S28.29 

22.183. 68 
352.921.85 

Jkt 233761 

Freight Revenue.-.-.. 


Jkt 233761 . 

Vessel Expense... 

116.964. 13 
3,054. 27 
2S1.72 
149. S5 
S32. 26 
2,716. 11 
24. 694. 07 
101. 726. 76 

250.419. 17 
1S4.514.45 

$434,933.62 

Jkt 112314 . 

Vessel Expense (See Detail #1 attached). 


Jkt. 117737. 

Vessel Expense (See Detail # 1 and #2 attached). 

Foreign Exchange Losses ..... 


Schedule #4-A... 
Schedule #4-B... 

Schedule #4-D... 

Agents Fees .__ .. 


1 Minimum Compensation _______ 


Daily filed charges. Period S/6-12/10/2o{ 1 g^>5| , '‘g;g 

434,933. 62 

434,933.62 


FORMULA 


D.W.T. 

No. of days 
in voyage 

1/12 of Year 

Net profits 

Rate 

Agent’s 

commis¬ 

sion 

8.627 > 

\ 127> 

: 12/365=36.020.68 D. W. T. Months. 




36,020.68 

D. W. T. > 

.50^ = 18,010.34 Maximum amount of net prof- 





Months 

its on which commission is 






chargeable at 10%. 

18.010.34 

10% 

1, SOI. 03 

36.020.68 

D. W. T. > 

C .50^ = 18,010.34 Maximum amount of net prof- 





Months 

its in excess of above on which 






commission is chargeable at 






20%. 

IS. 010. 34 

20% 

3,602.07 



Commission is chargeable on 






net profits in excess of sums of 






2 foregoing amounts at rate of 






25%. 

148,493. 77 

25% 

37.123.44 

— 



184.514.45 


42,526. 54 


Note. —Inventory was taken November 30,1920. All purchases of stores subsequent thereto were charged 
to the subsequent voyage under the MO-4 Agreement—See accountings. Jackets 112314 and 117737. The 
consumption of consumables for period 11/30-12/10/20 is therefore not included in costs of Voyage 1-53, shown 
above, and to that extent the net profits are in error and commission figured in an excess amount. 













































U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 49 

57 Detail #1 Supporting Schedule #4-C-S.—&. S. West Segovia—Voyage 
1—53 August 5-Dccembcr 10, 1920, expense items applicable to voy. 1-53, 
reported in accountings charged to voy. 2-54 

Jacket #112314 — Form #5541 — A ~ew York Disbursements —$-j 56,189.39 


Vo. 1 Payroll, 12/1-12/9/20. 82,297.45 

2 Chas. Tomrop, Running Lines, 12/9/20_ l(j). 00 

3 J. Williams, Night Engnr.—Pav Voucher, 

12/S—12/10. 3i. 80 

4 Campbell & Stuart—Fresh water, 11/30/20. 40.00 

8 Sabbotino & Co.—Wharfage—8120.00, 12/9-12/11. 80.00 

10 Edmund Leigh—Guarding ship, 11/30-12/10/20.._ 105. 6S 

11 G. H. Fernald—Pilotage, 12/4/20.. 10. 00 

12 G. H. Fernald—Pilotage, 12/9/20... 1^.00 

15 J. J. Phillips—Cartage, 12/3/20_ 5. 00 

25 Modern Steamship Laundrv, 12/10/20_ 11$. 84 

26 F. S. Dalzell & Co—Towing, 12/4-12/9/20_ 330. 00 

27 T. S. & J. D. Negus—Rating chronometer, 

12/10/20_ 1$. 50 

-1- 3,054 27 

Jacket #117737—Form #5541—New York Disbursements — $\15,235.14 

Vo. 1 H. P. Frank—Pavroll—814.90S.63 (See Detail 

#2 attached), 12/10/20-3/7/21. 244. 92 

Form #5541—New York Disbursements — $13,886\31 

Vo. 3 Atlantic Coast Shipping Company—Transporta¬ 
tion of Crew—8218. 00. 30. 80 

-!- 281. 72 


Total.....83,335.99 





















50 U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO 


58 Detail #2 Supporting Schedule #4-0-S. — Detail of vo. 1 — $2^.92 

icayes for day. Dee. 10. 1920 


N. C. Olsen. Chief Officer. 

A. C. Stewart,2nd Officer. 

W. A. Hyde. 3rd Officer. 

J. Kantson, Carpenter. 

J. Hammerstadt, Bos'n. 

J. Saulet, A. B. 

H. Anderson. A. B. 

F. Conner. A. B. 

X. Motchniskv, A. B. 

Y. Svenson. A. B.. 

A. Romonofekv. A. B. 

C. Jansen, A. B. 

B. Sewalt, A. B. 

E. Atterburg. O. S. 

A. Heim, O. S. 

A. Geo. Esteves, O. S. 

U. Ambramsen, O. S. 

A. E. Krotnaver. Ch. Engnr. 

W. H. Mathewson, 1st Asst. Engnr 
M. E. Melander, 2nd Asst. Engnr-. 

E. C. Rood. 3rd Asst. Engnr. 

A. Winter, D. Engnr. 

L. K. Dana, Oiler. 

O. Osterlof, Oiler. 

L. Steiner, Oiler. 

C. Howleiiki, Fireman. 

J. Doyle, Fireman. 

J. Steiner, Fireman.. 

J. Monida. Wiper. 

R. Tabio, Wiper. 

F. Mines, Wiper. 

A. Fraser, Ch. Steward. 

A. Vermulen, 2nd Cook. 

S. Sonnies, Utility. 

A. Teixeiro, Messman. 

G. H. Hall, Messman... Z . 

A. Duysen, Messman. 

A. Antunes, Mess boy. 

P. Morris, Wireless. 

Chas. Svenson, Ch. Cook. 


Wages 

Board 

Money 

$7.63 

3.00 

6.67 

3.00 

5.88 

3.00 

3.33 

2.25 

3. 17 

2.25 

2.83 

2.25 

2.83 

2.25 

2.83 

2.25 

2.83 

2.25 

2.83 

2.25 

2.83 

2.25 

2.83 

2.25 

2.83 

2.25 

2.17 

2.25 

2.17 

2.25 

2.17 

2.25 

2. 17 

2.25 

11.08 

4.50 

7.63 

3.00 

6.67 

3.00 

5.88 

3.00 

3.33 

2.25 

3.17 

2.25 

3.17 

2.25 

3. 17 

2. 25 

3.00 

2.25 

3.00 

2.25 

3.00 

2.25 

2.50 

2.25 

2. .50 

2.25 

2.50 

2.25 

4.50 

3.00 

3.33 

2.25 

2.33 

2.25 

2.33 

2.25 

2.33 

2.25 

2.33 

2.25 

2.17 

2.25 

4.17 

3.00 

3.83 

3.00 













































U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 51 


Schedule #4-C-9 .—Aetna Casualty and Surety Company—Statement of 
commissions earned by Sigsbee, Humphrey and Co., Inei, on net profits 
as per paragraph D. see. 11, MO-3 agreement — S. S. Wekt Zeda, voyage 
2-33, J { /23-ll/10/20 | 


Reference 



Expense Revenue 


Jkt. 223455. Demurrage revenue— Polish Government. $48.637.6S 

Less: Reduction made in settlement with 27,137.68 
Polish Government. 


21.500.00 


Jkt. 233762. Freight Revenue.. r . 400,381.45 

Jkt. 233762. Passenger revenue—Consular.... 20.00 

Jkt. 233762. Voyage Expenses. 164.728.10 

Xj€SS * 

Jkt. 233762. items applicable to Voy. 1-52 3,3S4.94 

under 0-2 Agreement (See 
Detail #1 attached). 

Jkt. 233762. Items applicable to Voy. 3-54 4.950.28 8.335.22 

under (M Agreement (See 
Detail #1 attached). 


156.392. SS 


Difference in Inventory 4/25/20, 
beginning of Voyage 2-53. 

Amount shown on adjusted • 5.015.94 
inventory. U. S. S. B. files, 
signed by L. M. Ingres. Pur¬ 
chasing Agt., Sigsbee, Hum¬ 
phrey & Company. 

Amount charged in Voyage 3.488.02 
Accounting—Jkt. 233762. 


1.527.92 157| 920. SO 


Jkt. 118712. Voyage expense—items charged to Voy. 3-54 applicable this 

voyage (See Detail 1 3 attached). 

Jkt. 121509. Voyage expense—items paid for directly by U. S. S. B. 

5907 X3-277. Foreign Exchange losses. 

Schedule #4-A... Agents Fees. 

Schedule #4-B_ Minimum Compensation. 

Schedule #4-D... Daily fixed charges. Period 4/25-11/10/20, 200 days at 
$953.8394. 


Balance—Net Profit. 


52.00 

27.50 
; 136.85 
ll 306. 67 
3 286.67 
190; 767.88 


353; 498. 37 
68l 403.08 


$4211901.45 



D. W. T. 


No. days 
in voyage 



421,901.45 


421,901.45 


8.500 X 200 X 12/365 = 62.465.75 D. W. T. Months. 

02,465.75 D. W. T. MonthsX.50^=31,232.SS Maximum amt. of net 

profits on which com¬ 
mission is chargeable 


62,465.75 D. W. T. MonthsX. 50^=31.232.88 Maximum amt. of net 

profits in excess of above 
on which commission 
is chargeable at 20%... 

Commission is charge¬ 
able on net profits in 
excess of sum of two 
foregoing amounts at 
rate of 25%. 


- r 

Net profits 

1 

Rate 

! 

! 

j 

| 

$31,232. 8^ 

i 

10 

| 

31,232.8$ 

20 

5.937.32 

25 

$68,403. 



Agent’s 

commis¬ 

sion 


10,854. 


















































52 U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 

60 Detail #1 S importing Schedule #4-0-9.—<8. S. West Zed a, voyage 2-53 , 
4/25-11/10/20, item $ included in accounting. Jacket 233762. charged to 
voyage 2-53. which arc applicable to preceding voyage 1-52 

Form #5541—New York Disbursements—SI 1,153.92 


Vo. 21 Pavroll 4/6/20. $59. 2S 

Vo. 22 Pavroll 4/6-4/14/20__ 1, 4S0. 95 

Vo. 23 Payroll 4/15-4/23/20.. 1, 544. 19 

Form #5541—New York Disbursements—$29,436.5S 

Vo. S9 Payroll 4/24-9/9/20 (See Detail #2 attached)_ 157.46 

Form #5541—New York Disbursements—820,119.25 

Vo. 94 Masters expense, $152.05_ 107. 35 

Vo. 95 Payroll 4/24-5/3/20, S226.S9_ 7. 76 

Vo. 96 Long distance telephone calls, S4S.65- 27. 95 

- $3, 384. 94 


Items Included in Accounting, Jkt. 233762, Charged to Voyage 2-53, which are 

Applicable to Subsequent Voyage 3-54 

Form #5541—New York Disbursements—$11,153.92 


Vo. 27 Overseas Shipping Co., Discharging Ballast 2/24/21. $13.44 

Vo. 28 Overseas Shipping Co., Discharging Ballast 2/24/21. 1,607.10 

Vo. 29 Overseas Shipping Co., Discharging Ballast 2/24/21. 94 86 

Vo. 30 Overseas Shipping Co., Discharging Ballast 2/24/21. 69.33 

Form #5541—New York Disbursements—$20,119.25 

Vo. 99 Payroll 11/11-11/17/20.... 1, 013. 78 

Vo. 100 A. F. Brombacher—Carriage bolts, 11/13/20_ . 56 

Vo. 104 N. Y. Bay Express—Launch hire, 11/11/20_ 3. 00 

Vo. 105 N. Y. Bay Express—Launch hire, 11/11/20_ 2. 00 

Vo. 106 N. Y. Bav Express—Launch hire, 11/13/20— 

$18.50_ l .. 8.50 

Vo. 107 N. Y. Bay Express—Launch hire, 11/16/20_ 3. 00 

Vo. 108 N. Y. Bay Express—Launch hire, 11/18/20_ 3. 00 

Vo. 109 N. Y. Bay Express—Launch hire, 11/19/20. 15. 00 

Vo. 112 Payroll 11/18-11/26/20... 1, 837. 33 

Vo. 113 G. H. Fernald—Pilotage, 11/18/20_ 10. 00 

Vo. 114 Supl. Payroll 11/19-11/27/20. .. 124 88 

Vo. 115 N. Y. Bay Express, 11/19/20_ 24 00 

Vo. 116 Sunset Laundry, 11/19/20___ 30. 70 

Vo. 117 Campbell & Stuart—Fresh water, 11/17/20_ 35. 55 

Vo. 118 Sunset Laundry, 11/11/20_ 37. 00 

Vo. 119 Sunset Laundry, 11/26/20_ 17. 25 $4, 950. 28 


Total. 8, 335. 22 





























U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURE'^Y CO. 53 


61 Detail #2 Supporting Schedule #4-0-9.—S. <S. West Zeda, voyage 
2-53, 4/25-11/10/20, detail of vo. 89—pay roll 4/24-9/9/20,$23,509.82— 
period 4 / 24/20 



Wages 

Board 

money 

;-1- 

i 

Overtime 

i 

Total 

A. Self, Master -- _ _ . - _ 

$11.92 

$2.33 




N L. Vreeland. Ghf. Officer 

7.63 

2.00 


i_ 


H. W Gelnnr, 2nd Officer . . . ... 

6.67 

2.00 




W. S. Allen, 3rd Officer _____ __ ___ 

5.88 

2.00 




N. Inver. Ros’n . - _ .. 

3.17 

1.00 


i 


J. NessAnhertr. A. R _ _ _...... 

2.83 

1.00 


j 


Z. J. Dnffv. A. R _ . - . _ _ 

2.83 

1.00 


i 


I. D Reat.t.v. AR ___ _ 

2.83 

1.00 


r 


Tv Orver. AR .... 

2.83 

1.00 




A. And Arson. A. B _ . _ 

2.83 





J F Fnndsnn. AR ------ - _ 

2.83 

1.00 


1 


G A Shoemaker. O. S ----- - _ 

2.17 





A Hlista. O. S _ - - - .. 

2.17 



i . „ 


Cl Oswftldt.. O. S __ 

2.17 

1.00 




J. Renes - - _ _ _ _ 

2.17 

1.00 


! 


G F Miller. Gh. Fmnneer . 

11.08 

2.33 


i 


W TAmnn. 1st. Asst. F.nvr . 

7.63 

2.00 


I. 


H T Maxwell. 2nd Asst. Engr _ - - . _ 

6.67 





L. Duncan. 3rd Asst. Fncr ... 

5.88 

2.00 




F. Lane, Dk. Engineer - - _ 

3.33 

1.00 




J F Smith. Oiler . 

3.17 

1.00 




TT. T. Gahraman, Oiler .... 

3.17 

1.00 




W. D. Lynch, Oiler _ _ ___ 

3.17 

1.00 




R F.drrmnsnn. Fireman 

3.00 

1.00 




W Gnleman. Fireman ... 

3.00 

1.00 




O. Lvnch. Fireman ___ _ _ . _ _ .. 

3.00 





A Dnno<in. Winer _ .... 

2.50 

1.00 




O Prvnr. Steward .-.. 

4.50 





J. Youncer. Radio Oor . . . 

4.17 

2.00 


$0.60 



125.20 

31.66 


.60 

i 

$157.46 


62 Detail #3 Supporting Schedule #4-0-9.—£. S. West Zeda, voyage 2-53, 
4/25-11/10/20, items included in accounting, Jacket 118712, charged to 
voyage 1-52, which arc applicable to voyage 2-53 

Form #5541—Baltimore Disbursements—S966.94 


Vo. 13, W. B. Walters, Outward Pilotage 4/27..$4S. 00 

Vo. 17, W. F. Spice & Co., C. H. B.—Clearing.. 4. 00 


$52. 00 




















































Schedule #4-D. —Aetna Casually and Surety Company—Statement of daily fixed charges to be included in costs of all voyages completed 

under terms of the M. 0.-8 agreement 


54 U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 


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U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SUREtY CO. 55 


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57 


U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 

65 Pleas of defendant 

Filed February 23, 1932 

* * * * * * * 

FIRST PLEA 

Comes now the defendant and for a plea to the declaration filed 
herein, says: 

It admits its corporate existence and admits the execution by it of 
the bond, mentioned in said declaration, dated January 27i 1920, and 
filed with said declaration as Exhibit 3. 

It admits the execution of the letter dated June 7, 1920, filed as 
Exhibit 5, and also admits the execution of the letter dated June 15, 
1921, and filed with the declaration as Exhibit 7. 

It admits the execution by Sigsbee Humphrey & Company, Inc., 
of the agreements mentioned in said declaration and filedj therewith 
as Exhibits 1, 2, 4, and 6. 

It denies all the other allegations of said declaration. 

i 

SECOND PLEA 

! 

And for a second and further plea to said declaration, tips defend¬ 
ant says that the said bond upon which this suit is brought and 
described in the declaration as Exhibit 3, provided as follows: 

“This bond is given subject to the following conditions :| 

“First. Upon the discovery by the Corporation of any evidence of 
the loss forming the basis of a claim hereunder, the Corporation 
shall give to the Surety, at its Home Office, immediate written notice 
thereof, with all available facts, and in any event within thirty days 
after such discovery, and shall afford the Surety every reasonable 
facility for investigating the same. Payment of any such loss shall 
be made by the Surety promptly, after receipt from the Corporation 
of satisfactory statement thereof. Upon the payment of la loss the 
Surety shall be subrogated to all of the rights of the Corporation 
with respect thereto; and the Corporation will execute apy and all 
papers reasonably required by the Surety to effectjuate that 
purpose.” | 

66 Defendant avers that on, to-wit, March 1, 1927, and for a 
long time prior thereto, plaintiff was fully informed as to, 

and was in receipt of evidence of the matters and things j alleged in 
said declaration as constituting a failure of the agent, to-wit, Sigsbee 
Humphrey & Company, Inc., to discharge its obligations or to per¬ 
form its duties under the said agreements. Exhibits 1, 2L 4, and 6, 
and as constituting the basis of its claim under the said bonld, Exhibit 
3. That plaintiff wholly failed to give to this defendant any proper 
or sufficient notice within the terms of the said bond. Exhibit 3, of 
any claim by reason thereof, or any notice to this defendant of any 
evidence forming the basis of a claim under the aforesaid agreements 
within thirty days after the discovery thereof by plaintiff, as re¬ 
quired by the terms of said bond (Exhibit 3 attached to declaration) 
as aforesaid. 



58 U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 


Defendant further avers that by reason of the failure of plaintiff 
to notify it within the time and "in the manner prescribed in said 
bond, of its evidence of loss forming the basis of its claim, defendant 
is released and discharged of and from any liability under said bond. 

THIRD PLEA 

I 

And for a third and further plea to said declaration, defendant 
says that plaintiff ought not to have or maintain its suit against 
defendant for the further reason : 

Defendant avers that on. to-wit. June 15. 1921. and for a long 
time prior thereto, plaintiff was fully informed as to. and was in 
receipt of evidence of the matters and things alleged in said declara¬ 
tion as constituting a failure of the agent, to-wit. Sigsbee Humphrey 
& Company. Inc., to discharge its obligations or to perform its 
duties under the said agreements. Exhibits 2. 1. 4. and 6. filed with 
the said declaration. 

That notwithstanding plaintiff became aware of and was 

67 fully advised of said matters and things alleged in said declar¬ 
ation to have been done or omitted by said agent. Sigsbee 

Humphrey & Company, Inc., plaintiff advanced and paid to said 
Sigsbee Humphrey & Company, Inc., large sums of money, in excess 
of the amount claimed in said declaration to be due to the plaintiff 
by reason of said matters and things alleged to have been done or 
omitted by said agent: that said plaintiff did not advise or inform 
this defendant either before or subsequent to the making of the afore¬ 
said payments that the same would be made or that said Sigsbee 
Humphrey & Company, Inc., would be held accountable for same, 
but the plaintiff concealed the same and withheld knowledge of the 
same from defendant, and this defendant was wholly without knowl¬ 
edge or information that such advances or payments had been made; 
that had this defendant been advised and informed that said ad¬ 
vances or payments had been made, or were to be made, and said 
Sigsbee Humphrey & Company, Inc., to be held accountable for same, 
it would have exercised its right to cancel said bond (Exhibit 3 
attached to declaration) under the following provisions thereof: 

“Secondly. This bond may be cancelled at any time by either the 
Corporation or the Surety giving to the other thirty days’ written 
notice thereof; provided that as to any vessel on voyage at the time 
of giving such notice by the Surety and which voyage is not con¬ 
cluded before the date of cancellation mentioned in the notice, the 
bond shall continue in force until ten days after the end of such voy¬ 
age, and terminate at the expiration of such ten day period.” 

And this defendant would not have executed the* letter dated June 
15. 1921, filed as Exhibit 7 to the declaration. Defendant avers that 
whatever loss, if any, plaintiff has suffered by reason of the matters 
and things alleged in said declaration as having been done or omitted 
by said agent, Sigsbee Humphrey & Company, Inc., has resulted 
solely by reason and because of said advances or payments as afore¬ 
said. 

68 Defendant further avers that by reason and because of said 
advances or payments by plaintiff and by reason of the conceal¬ 
ment from defendant of the matters and things done as aforesaid 


U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETjY CO. 59 

and of the withholding from defendant of knowledge of same, 
defendant is released and discharged of and from any liability under 
said bond. 

FOURTH PLEA 

And for a fourth and further plea, this defendant says the the 
plaintiff's cause of action herein, if any it has, accured giore than 
three years prior to the commencement of this action, notwithstanding 
that during all of said period defendant was subject to tjie process 
of this Court. 

Ellis. Ferguson, Houghton & Gary, 

By Challen B. Ellis. 

Bingham, Englar. Jones & Houston, 

By Charles F. Quantrell, 

Attorneys for Defendant. 

Service of a copy of the foregoing Pleas of Defendant; is hereby 
acknowledged this 23 day of February. 193*2. 

Leo A. Hover, i 

United States Attorney for the District of Columbia , 

Attorney for Plaintiff. 

Meinorandum opin ion 
Filed December 29. 1936 


I think that the requirement of notice contained in the bond is 
a condition precedent of liability: that the loss sustained \yas of the 
character such that notice of loss was required; that notice was not 
given within the time and in the manner required by the bond 
69 and that there was no wainer by the defendant of the notice 
required by the bond. 

Bailey, J . 

! . 

District Court of the United States for the District of Columbia 

Tuesday, December ^9, 1936. 

Session resumed pursuant to adjournment, Hon. Jennings Bailey, 
Justice, presiding. 

* * * * * * ( * 

This cause having been heretofore duly argued and submitted to 

the Court, the Court this d&v finds for the defendant, 

* 

Motion for judgment for plaintiff and request for exceptions 

Filed January 4, 193T j 

* * * * * * * 

i 

Comes now the plaintiff and excepts to each and every Sliding and 
conclusion contained in the memorandum of Mr. Justice Bailey filed 
herein December 29, 1936, excepting specifically to the conclusion of 
the Court that the requirement of notice contained in the bond in 
suit is a condition precedent to liability of the defendant; ai^d further 
excepting specifically to the conclusion of the Court that the loss sus- 
excepting specifically to the conclusion of the Court that the loss 


1 





00 U- S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 


was required; and excepting further specifically to the finding and 
conclusion of the Court that notice was not given to the defendant 
within the time required by the bond; and further specifically ex¬ 
cepting to the finding and conclusion of the Court that notice was not 
given in the manner Required by the bond: and further specifically 
excepting to the finding and conclusion of the Court that there 
TO was no waiver by the defendant of the notice required by the 
bond, and requests the Court to enter these exceptions in the 
record of this cause. 

Furthermore, upon the ground that said findings and conclusions 
are contrary to law and to the evidence herein, this plaintiff moves 
the Court for findings and conclusions in its favor in accordance 
with the annexed “Findings Of Fact And Conclusions Of Law.” 

Leslie C. Garnett, 

United States Attorney. 

Harry L. Underwood, 

Assistant United States Attorney. 

Note. —For Findings of Fact and Conclusions of Law hereto at- 

err 

tached see Bill of Exceptions. 

Memorandum 
Januarv 5, 1937 

Findings of Fact and Conclusions of Law in favor of defendant— 
filed. Same will be found in Bill of Exceptions. 

District Court of the United States for the District of Columbia 

Tuesday, January 5, 1937. 

By order of the Associate Justices, Jennings Bailey, Jesse C. 
Adkins, Joseph W. Cox and F. Dickinson Letts, of the District 
Court of the United States for the District of Columbia, these Divi¬ 
sions are opened by proclamation of the United States Marshal, 
pursuant to rule of Court. 

* * * * * * ♦ 

Upon consideration of the motion filed herein, for judgment 
71 for the plaintiff and request for exceptions, it is ordered that 
said motion for judgment be, and the same is hereby denied, 
and the exceptions are hereby allowed, and judgment on the finding 
of the Court is ordered. 

Wherefore, it is considered that plaintiff take nothing by this 
action that defendant go hence without day, be for nothing held 
and recover of plaintiff its costs of defense and have execution 
thereof. 

To the foregoing order an exception is duly noted and allowed. 

Bailey, Justice. 







U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. QJ- 
Motion for extension of time for fling 'bill of exceptions 


Filed January 22, 1937 


* * * * * * i * 

I 

i 

Now comes the plaintiff herein by its counsel and moves the Court 
that the time for filing the Bill of Exceptions in the above-entitled 
cause be extended until February 15, 1937. 

Leslie C. Garnett, I 

United States Attorney , Attorney for Plaintiff. 


District Court of the United States for the District of 


Columbia 


Friday, January 22, 1937. 

Session resumed pursuant to adjournment, Hon. Jennings Bailey, 
Justice, presiding. j 


* * * * * * * 

j 

Comes now the plaintiff by its attorneys of record, and in open 
Court, notes an appeal to the United States Court of Appeals for 
the District of Columbia from the judgment entered herein January 
5,1937. j 

72 And thereupon, upon consideration of the mption filed 
herein, for extension of time for filing Bill of Exceptions, it 
is ordered that said motion be, and the same is hereby granted, and 
the time is hereby extended to February 15, 1937. 

Assignment of errors 

I 

Filed February 6,1937 

* * V * * * * 

Plaintiff assigns as errors in the findings, conclusions, rulings, and 
decisions of the Court, the following : 

1. Error in denying the plaintiffs motion for judgmeht. 

2. Error in the refusal of plaintiff’s requested conclusion of law. 
numbered 1, viz., that compliance by the obligee in the bond in suit 
with the requirement for notice contained in the provision of the 
said bond, reading : 

“Upon the discovery by the Corporation of any evidence of loss 
forming the basis of the claim hereunder, the Corporation shall give 
to the surety, at its home office, immediate written notice thereof, 
with all available facts, and in any event, within thirty! days after 
such discovery * * 

does not constitute a condition precedent to liability of the defendant 
under said bond. 

3. Error in the refusal to find and conclude that due and timely 
notice as required by the bond involved in this cause was given to 
and received by the defendant. 


143081—37 - 5 



02 Tj- S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 

4. Error in making its conclusion numbered 1, viz., that compliance 
by the obligee in the bond in suit with the requirement as contained 
in said bona, to wit, 

“Upon the discovery by the Corporation of any evidence of loss 
forming the basis of the claim hereunder, the Corporation shall give 
to the surety, at its home office, immediate written notice thereof, 
with all available facts, and in any event, within thirty days after 
such discovery * * *’ 7 , 

73 constitutes a condition precedent to any liability of the de¬ 
fendant under the said bond. 

5. Error in finding and concluding that the defendant has not 
received the notice required by the bond in suit within the time 
prescribed in the bond. 

6. Error in finding and concluding that there was no waiver by the 
defendant of the notice required in said bond. 

7. Error in finding and concluding that the defendant is entitled 
to a verdict in its favor. 

8. Error in finding and concluding that the defendant is entitled 
to judgment in its favor. 

9. Error in rendering judgment for the defendant. 

Leslie C. Garnett, 

United States Attorney. 

Harry L. Underwood, 
Assistant United States Attorney. 

F. K. Conway, 

Of Counsel. 

Service of a copy of the within and foregoing assignment of errors 
is hereby acknowledged this 6th day of February, 1937. 

Challen B. Ellis, 
Attorney for Defendant. 

Memorandum 
Februarv 11, 1937 

Bill of Exceptions and Notice—filed. 

74 District Court of the United States for the District of 

Columbia 

Friday, March 5, 1937. 

Session resumed pursuant to adjournment, Hon. Jennings Bailey, 
Justice, presiding. 

******* 

Come now the parties hereto by their respective attorneys of 
record, and thereupon, the plaintiff by its attorneys submits to the 
Court its Bill of Exceptions, taken at the trial off this cause, and 
prays that the same be signed and made of record, nunc pro tunc , 
which is hereby accordingly done. 



Designation of record 
Filed February 6, 1937 

****** * 


To the Clerk of Said Court: 

The plaintiff designates the parts of the record herein which it 
desires to be included in the transcript on appeal to tljie United 
States Court of Appeals for the District of Columbia, ap follows: 

1. Declaration with exhibits, including Exhibit 8 i (Bill of 
Particulars). 

2. Defendant’s pleas to the declaration. 

3. Memorandum opinion of court filed December 29, 1936, and 
minute entry of finding for defendant. 

4. Motion for judgment for plaintiff and request for exceptions 
and for findings and conclusions, filed January 4, 1937. 

5. Minute entry of January 5, 1937, of denial of motion and 
allowance of exceptions. 

6. Findings of fact and conclusions of law in favor of defendant, 

filed January 5, 1937. 

75 7. Minute entry of judgment. 

8. Minute of noting of appeal in open court. 

9. Motion for extension of time for filing bill of exceptions and 
minute entry of allowance. 

10. Assignment of errors. 

12. Bill of exceptions. 

13. This designation. 

Leslie C. Garnett, 

United States Attorney. 

Harry L. Underwood, 
Assistant United States Attorney. 

F. R. Conway, 

Of Counsel. 


Service of a copy of the within and foregoing designation of the 
record on appeal is hereby acknowledged this 6th day of February, 

-i r\c\*r 


1937. 


Challen B. EpLis, 
Attorney for Defendant. 


76 District Court of the United States for the District of Columbia 

! 

United States of America, 

District of Columbia , ss: 

I, Charles E. Stewart, Clerk of the District Court of the United 
States for the District of Columbia, hereby certify the foregoing 
pages numbered from 1 to 75, both inclusive, to be a true and correct 
transcript of the record, according to directions of counsel herein 
filed, copy of which is made part of this transcript, in cause No. 
80416 at law, wherein United States Shipping Board Merchant 
Fleet Corporation to the use of the United States of America is 
Plaintiff and The Aetna Casualty and Surety Company, ^ corpora¬ 
tion, is Defendant, as the same remains upon the files and of record 
in said Court. 




04 r. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 


In testimony whereof, I hereunto subscribe my name and affix the 
seal of said Court, at the City of Washington, in said District, this 
31st day of March, 1937. 

[seal] Charles E. Stewart, 

Cleric. 

By Chas. B. Coffin, 

Assistant Clerk. 

77 United States Court of Appeals for the District of Columbia. 

Filed Apr. 27, 1937. MonCure Burke, Clerk. 

District Court of the United States for the District of Columbia 

At Law No. 80,416 

United States Shipping Board Merchant Fleet Corporation to 
the Use of the United States of America, plaintiff 

v. 

The Aetna Casualty & Surety Company, defendant 

To Challen B. Ellis, Esq.. 

Attorney for defendant: 

Please take notice that the within Bill of Exceptions will be called 
to the attention of and submitted to the court on March 10, 1937, at 
10 o’clock A. M., or as soon as counsel can be heard, for the purpose 
of having the same signed and sealed by the court. 

Leslie C. Garnett, 

United States Attorney , 

Attorney for plaintiff. 

Service of the foregoing notice and a copy of the said Bill of 
Exceptions is hereby acknowledged this 11th day of February, 1937. 

Ch allen B. Ellis, 

Attorney for defendant. 

78 District Court of the United States, for the District of 

Columbia 

At Law No. 80,416 

United States Shipping Board Merchant Fleet Corporation to 

THE USE OF THE UNITED STATES OF AMERICA, PLAINTIFF 

VS. 

The Aetna Casualty & Surety Company, defendant 
Plaintiffs bill of exceptions 

Be it remembered that on November 23, 1936, the Honorable 
Jennings Bailey, a justice of this court, presiding, the parties appear¬ 
ing by their respective attorneys, this cause came on to be heard 




U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 05 

before the court, sitting without a jury, upon the issues stated in the 
stipulation first below described, the following proceedings were had, 
to wit: 

The plaintiff introduced and the court received the stipulation, 
in writing, of the parties, filed herein on June 16, 1936] the same 
being in the words, letters, and figures following, to wit: 

“It is stipulated that: 

“1. The issues stated in this paragraph shall be submitted to and 
adjudicated by the court without the intervention of a jury, the 
parties hereby expressly waiving the right of trial by jury as to 
said issues, before the trial of any other issue in this cause. The 
issues so to be submitted are: 

“(a) Whether compliance by the obligee with the requirement for 
notice as contained in 'the provision of the bond, Exhibit A 

79 annexed to the declaration in this action—reading--*upon the 
discoverv by the corporation of anv evidence of tlieiloss form- 

ing the basis of a claim hereunder, the corporation shall give to the 
surety, at its own home office, immediate written notice thereof, with 
all available facts, and in anv event, within thirtv days latter such 
discoverv * * constitutes a condition precedent to anv liability 

of the defendant under the said bond. 

“(b) Whether, if such compliance is a condition precedent to such 
liability, the defendant has received the notice thereby required with¬ 
in the time in said condition prescribed. 

“It is further stipulated that solely and only for the purpose of 
trial of the aforesaid issues, the following shall be taken, treated and 
established as facts in this cause, subject, however, to such objection 
as either mav make as to relevancv and materiality of anv! such fact, 
that is to say: 

“2. Under Act of Congress, approved September 7.| 1916 (39 
Statutes at Large 728, U. S. C., title 46. Sec. 801 et seq.), designated 
by the statutory name of ‘Shipping Act, 1916’, provision j was made 
for the creation of a Federal Board, to be appointed by thej President 
of the United States and to be known as United States! Shipping 
Board. Pursuant to said Act, Commissioners were duly j appointed 
by the President and confirmed by the Senate. The said Board 
organized in January, 1917, and thereafter and up to August 10, 
1933, acted with all the powers and duties conferred upon it by said 
Shipping Act, 191.6, and after June 5, 1920, with all the powers and 
duties conferred upon it by the Merchant Marine Act, 11920, and 
other Acts of Congress not herein specifically mentioned. 

“3. Congress in contemplation of the possibility of war, by Section 
11, Shipping Act, 1916, authorized by the United States! Shipping 
Board, if in its judgment such action was necessary to carry out 
the purposes of the said Act, to form under the laVs of the 
District of Columbia one or more corporations, provided that 

80 the capital stock of such corporation or corporations should 
not exceed $50,000,000, and for and on behalf of t)ie United 

States, to subscribe to, purchase and vote not less than a majority 
of the capital stock of any such corporation and do all other things 
with regard thereto necessary to protect the interests of t]he United 
States and to carry out the purposes of the Shipping Act,| 1916, and 




00 U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 

required that ‘at the expiration of five years from the conclusion 
of the present European War * * *, any such Corporation in 
which the United States is then a stockholder shall * * * stand 
dissolved.’ To carry out the purposes of the Shipping Act, 1916, 
and pursuant to its provisions, the Shipping Board caused to be 
incorporated on April 16, 1917 (ten days after the United States 
declared war), under the laws of the District of Columbia, a private 
corporation under the name ‘United States Shipping Board Emer¬ 
gency Fleet Corporation’, which corporation under its present name, 
United States Shipping Board Merchant Fleet Corporation, is the 
plaintiff suing herein to the use of the United States. 

“4. After its incorporation as aforesaid, and during the year 1917, 
the said United States Shipping Board, for and on behalf of the 
United States, subscribed to all the authorized capital stock of said 
Fleet Corporation in the sum of $50,000,000 and caused said sum to 
be paid to the Fleet Corporation from the Treasury of the United 
States. 

‘•The United States Shipping Board Emergency Fleet Corpora¬ 
tion, now named United States Shipping Board Merchant Fleet 
Corporation, is hereinafter referred to as the Fleet Corporation. 

‘*5. The Fleet Corporation as organized under the laws of the 
District of Columbia, had power, among others, to purchase, con¬ 
struct, and operate merchant vessels. 

**6. On April 16, 1923, the Fleet Corporation signed, sealed, 
81 and delivered by its President and Secretary thereunto duly 
authorized, and upon a valuable consideration, a document a 
true copy of which is hereto attached, marked ‘Exhibit 1* and made 
part hereof. 

‘•7. After June 5, 1920. the United States Shipping Board duly 
and legally adopted certain resolutions, true copies of which are 
hereto attached, marked, respectively, ‘Exhibits 2. 2-A, 3, and 4’, and 
made part hereof. 

‘*8. On June 16, 1919, Sigsbee, Humphrey & Company, Incor¬ 
porated, hereinafter called the agent, was organized as a corporation 
under and by virtue of the laws of the State of New York, and 
existed as such thenceforward until December 16, 1929, when it was 
duly dissolved by proclamation of the Secretary of State of the State 
of New York. 

“9. Beginning August 25. 1919. and ending September 23. 1921, 
the agent managed, operated, husbanded, and conducted the business 
of merchant vessels, owned by the United States, subject to the pro¬ 
visions. severally of the contracts described in the declaration, and 
designated, respectively, M2, 02, M03, and M04. The said M04 
agreement bears date February 10, 1921, but actually was executed 
and delivered February 17, 1921. 

“10. On September 23, 1921, Sigsbee, Humphrey & Company, In¬ 
corporated, ceased its operations as agents and managers and turned 
back their last vessel to the Fleet Corporation. 

“11. On January 27, 1920, the said M2 and 02 agreements then 
being in force, the agent as principal and the defendant as surety, 
made, executed, and delivered to the Fleet Corporation the bond 
described in the declaration; and thereafter upon the execution of 
the said M03 and M04 agreements, respectively, the defendant made 




U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 67 

and delivered to the Fleet Corporation the documents true copies 
of which are attached to the declaration as Exhibit 5 and 

Exhibit 7. . ! 

82 “12. The bond was terminated May 14, 1921, wfhen a new. 
bond was given by Sigsbee, Humphrey & Company, Incorpo¬ 
rated, with American Surety Company as surety in a smaller amount, 
to wit, $100,000. 

“13. On April 8,1921, the District Auditor of the Fleet Corporation 
at New York sent to, and there was duly received by Sigsbee, Hum¬ 
phrey & Company, Inc., a letter a true copy of which ii hereto at¬ 
tached, made part heerof, and marked ‘Exhibit 5.’ 

“14. On April 15, 1921, the Treasurer of the Fleet Corporation 
sent to, and there was duly received by the defendant, at its Home 
Office, Hartford, Connecticut, a letter a true copy of which is hereto 
attached, made part hereof, and marked ‘Exhibit 6.’ | 

“15. On April 19, 1921, the Manager, Contract Bureau, United 
States Shipping Board Emergency Fleet Corporation, s^nt to, and 
there was duly received by Sigsbee, Humphrey & Coippany, Inc., 
a letter a true copy of which is hereto attached, made part hereof 
and marked ‘Exhibit 7.’ , 

16. On May 14,1921, Sigsbee, Humphrey & Company, Inc., sent to, 
and there was duly received by said Manager, Contract Bureau, a 
letter a true copy of which is hereto attached, made part hereof, and 
marked ‘Exhibit 8.’ 

“17. On May 14, 1921, W. R. Harper, the Insurance Broker 
through whom the said bond of January 27, 1920, in thej amount of 
$500,000 was entered into, sent to, and there was duly received by 
the said Manager, Contract Bureau, a letter a true copy of which 
is hereto attached, made part hereof, and marked ‘Exhibit 9.’ 

“18. On May 19, 1921, the Treasurer of the Fleet Corporation sent 
to and there was duly received by the defendant at its office 100 Wil¬ 
liam Street, New York, N. Y., a letter a true copy of whifch is hereto 
attached, made part hereof, and marked ‘Exhibit jLO.’ 

83 ‘T9. On September 9, 1921, J. E. Fetzer, Assistant Counsel, 
Fleet Corporation, sent to. and there was duly received by N. 

A. Smyth, Assistant General Counsel, and S. H. E. Freund, Special 
Counsel, a letter a true copy of which is hereto attached^ made part 
hereof, and marked ‘Exhibit 11.’ ! 

“20. On March 30, 1922, by direction of the Board of Trustees of 
the Fleet Corporation, Office Memorandum No. 29 of that date, 
signed by the Secretary of the Fleet Corporation, wa^ duly pro¬ 
mulgated. A true copy of said office memorandum No. 29 is attached 
hereto, made part hereof, and marked ‘Exhibit 12.’ 

“21. On July 25, 1922, Assistant Counsel Fetzer sent tp, and there 
was duly received by Sigsbee, Humphrey & Company. Incorporated, 
a letter a true copy of which is hereto attached, made part hereof, 
and marked ‘Exhibit 13.’ 

“22. On August 18, 1922, the Disbursing Officer of the Fleet Cor¬ 
poration at New York sent to, and there was duly received by Sigs¬ 
bee, Humphrey & Company, Incorporated, a letter a tiiue copy of 
which is hereto attached, made part hereof, and marked ‘Exhibit 14.’ 

“23. On September 29, 1922, said Assistant Counsel Fetzer sent to, 
and there was duly received by Sigsbee, Humphrey & Company 



gg U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 


Inc., a letter a true copy of which is attached hereto, made part 
hereof, and marked ‘Exhibit 15.’ 

“24. On October 11, 1922, the Manager of the Washington office 
of defendant sent to, and there was duly received by the Treasurer of 
the Fleet Corporation, a letter, a true copy of which is hereto 
attached, made part hereof, and marked ‘Exhibit 16.’ 

“25. On October 24. 1922. the Treasurer of the Fleet Corporation 
sent to, and there was duly received by J. T. Jones, Manager, Aetna 
Casualty & Surety Company, Suite 826. Woodward Building, Wash¬ 
ington. D. C.. a letter a true copy of which is hereto attached, made 
part hereof, and marked ‘Exhibit IT.’ 

84 “26. On October 26. 1922, D. S. Morrison. Assistant to Di¬ 
rector of Finance. Fleet Corporation, sent, and there was duly 

received by said Assistant Counsel Fetzer, a memorandum a true 
copy of which, and Of the statement therein described and thereto 
attached, is hereto attached, made part hereof, and marked ‘Exhibit 
18’ and ‘Exhibit 18-A’, respectively. 

“27. On November 1 13. 1922, said Assistant Counsel Fetzer sent 
to the office of Sigsbee. Humphrey & Company, Inc., and there was 
duly received by it, a letter a true copy of which is hereto attached, 
made part hereof, and marked ‘Exhibit 19/ 

“Memorandum dated November 8, 1922, entitled ‘Sigsbee. Hum¬ 
phrey & Company, Report on Compensation*, signed by E. M. Stein- 
metz. then Field Auditor. Fleet Corporation, was submitted to 
Morrison and Fetzer. A true copy of said memorandum of Novem¬ 
ber 8, 1922, and of the statement thereto attached is hereto attached 
marked ‘Exhibit 19-A.’ 

“28. On November 25, 1922. A. D. Lasker. Chairman. United 
States Shipping Boiird, sent to. and there was duly received by 
Sigsbee, Humphrey & Company, Inc., a letter a true copy of which 
is hereto attached, made part hereof, and marked ‘Exhibit 1914/ 
“29. On December 13. 1922. said Freund, General Counsel, sent to 
and there was duly received by Sigsbee. Humphrey & Company, 
Inc., a letter a true copy of which is hereto attached, made part 
hereof and marked ‘Exhibit 20/ 

“The sum of $291,172.66 mentioned in the said letter of December 
13, 1922, is the result of the calculations made from the statements, 
copies of which are attached hereto, and marked respectively, ‘Ex¬ 
hibit 19-A’ and ‘Exhibit 18-A.’ 

“30. On April 3. 1928. Chauncey G. Parker, General Counsel, 
United States Shipping Board and Fleet Corporation, addressed 
a letter to ‘Aetna Casualty & Surety Company, Woodward 

85 Building, Washington, D. C/ and the same was duly received 
by the said addressee at the said address. A true copy of the 

same is hereto attached, made a part hereof, and market Exhibit 21/ 
“31. On September 27, 1928, Chauncey G. Parker, General Coun¬ 
sel, United States Shipping Board and Fleet Corporation, addressed 
a letter to ‘Aetna Casualty & Surety Company, Woodward Building, 
Washington, D. C.,’ and the same was duly received by the said 
addressee at the said address. A true copy of the same is hereto 
attached, made part hereof, and marked ‘Exhibit 22/ 

“32. On October 3, 1928, the defendant, from its Home Office, 
at Hartford, Connecticut, sent to, and there was duly received by 
the said Parker, General Counsel, a letter signed by C. K. Mount, 


U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 69 

the Secretary of the defendant. A true copy of the same is hereto 
attached, made a part hereof, and marked ‘Exhibit 23.’ 

“33. On December 4, 1928, said General Counsel Parker sent to, 
and there was duly received by the defendant at its Efome Office 
aforesaid, a letter a true copy of which is hereto attached, made 
part hereof, and marked ‘Exhibit 24.’ 

“34. On January 4, 1929, the defendant, from its Hfc>me Office 
at Hartford, Connecticut, sent to, and there was duly received by the 
said Parker, General Counsel, a letter signed by C. K. iiount, the 
Secretary of defendant. A true copy of same is hereto attached, 
made part hereof, and marked ‘Exhibit 25.’ 

“35. In addition to the above facts, it is stipulated (without ad-i 
mitting his statements as facts) that Raymond F. Tallman, if 
introduced and sworn as a witness in this cause, on his bath would 
testify as follows: 

“My business is that of Transportation Accountant. jl am now 
employed as an accountant statistician. Seaboard Air Line Receivers. 
I entered the employ of the Fleet Corporation November 6, 1918, 
at first in the capacity of statistician in connection with 

86 organization work. Later I took over a bureau charged with 
the responsibility of building up status records and itinerary 

records on vessels; and in 1921, August I think, I was placed in 
charge of the accounting division as Division Accountant in Charge 
of Operations and Construction Accounts, and thereafter continu¬ 
ously until in December 1923, I served in that capacity. I have 
not been connected with the Fleet Corporation since my employment 
terminated in December 1923. 

“The Accounting Division of the Fleet Corporation during the 
time of my employment comprised the corporation’s general office 
books, records and accounts with managing operators an^. all other 
subsidiary books of the corporation in connection with the operation 
of merchant vessels. The Division was charged with the responsi¬ 
bility of keeping books, effecting reconciliations with the books of 
the managing agents in the field, tracing for unsubmitted voyage 
accounts, recording voyage accounts as they came in, and referring 
them to the Auditing Division for audit. The books kept by man¬ 
aging agents in the field to which I refer were styled Cbntrol Ac¬ 
counts, 2 and 3, maintained by managing operators in conjunction 
with district auditors of the Fleet Corporation, as required by man¬ 
aging and operating agreements 1, 2 and M03. The district audi¬ 
tors reported to the General Comptroller, and the material coming 
from them was worked through the General Comptroller of the Fleet 
Corporation to me. I contacted them under the direction of the 
General Comptroller. The district auditors were responsible for 
auditing the accounts of managing operators—gathering them to¬ 
gether according to the prescribed procedure, setting them up prop¬ 
erly and sending them to the general office in Washington. Then 
they came to my Division and were recorded merely for identifica¬ 
tion, booked; that is to say, were entered as a debt or credit 

87 to the proper control accounts of the managing operators; and 
then they were referred to the Auditing Division for audit. 

“A voyage account, depending upon the nature of the voyage, 
might be a comparatively few papers, and again, might be a batch 
of documents a foot thick—it would depend on tne number of ports 



70 T7. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 

touched on the voyage, and the activities at those ports. The account 
consists of detailed manifests showing all revenues accruing to the 
vessel and the disbursements of pay rolls, ship supplies, fuel, port 
expenses and every nature of expense that would apply to the opera¬ 
tion of a vessel. The length of the voyage would indicate not only 
the volume of documents but also the complexities that would arise 
in connection with handling the documents, translations from foreign 
languages, currencies, rates of exchange, and a hundred other details. 
The data for voyage accounting would come in piecemeal. It was 
customary for a vessel departing from a United States port to send 
in the first port accounting, and then accountings would dribble in 
as the account of each port of call was completed. These port 
accounts had to be handled through agents abroad and find their 
way into the home offices of the managing agents in the United 
States, and in turn, through the district offices of the Fleet Corpora¬ 
tion, to Washington. 

“In 1921 the district auditors of the Fleet Corporation were 
assigned more particularly to the cleaning up of old accounts cov¬ 
ering operations from 1917 through early 1920 under the M and O 
agreements 1 and 2, and then as they completed those particular 
operations they continued on with the subsequent M03 agreement 
accounts. The aim was to clean up old operations first. Insolvencies 
were occurring, and it was quite necessary that the accounts of 
operators who were going out of the trade receive attention in pref¬ 
erence to those who apparently were able to continue in business. 
88 The volume of this work in the Washington office of the Fleet 
Corporation in 1921 was tremendous. The documents of voy¬ 
age accounts were contained in S00 four drawer file cases, and when 
the Fleet of Government merchant vessels had been in operation for 
three or four years, these accountings represented only a small por¬ 
tion of the complete accounts—there had been constant drives in the 
field through 1919. 1920 and early in 1921 to get the remaining 
accounts in—2,705 vessels through 296 operators were operated. It 
was estimated in 1920 that there had been 10.000 vovages to and from 
every part in the world. 

“Items reported by district auditors as suspended and disallowed 
were assembled in subsidiary Accounts Receivable accounts until 
completion of reconciliation of a particular operator’s account, and 
then such items would be scheduled and sent to the Managing Agents’ 
Adjustment Committee of the Fleet Corporation, for handling with 
the operator and the representative of the Auditing Division who 
had initially set up such suspended and disallowed items. After 
the Managing Agents Adjustment Committee had decided as to 
such items its decisions would be sent to my division for necessary 
entries, adjustments, and clearances. The operator would be advised 
immediately of the decisions of the Managing Agents Adjustment 
Committee. 

“There is no way to determine the completeness of a voyage ac¬ 
count until the activities of the vessel are set down—the ports at 
which she called, what she did at each port, how much cargo she 
loaded, where she was destined, how much she got, such facts have 
to be determined from the logs. The completeness of the account 
cannot be determined from books and records alone. These must 


U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETlj CO. 71 


be associated with the ship’s official log. That is one of things that 
caused complications in the accounting. From the accountant’s 
standpoint, that is why a ship’s log is made. A captain ljnay take 
on 5,000 tons of cargo at Bremen to be unloaded ait Genoa. 

89 He couldn’t let it off of his log, because he has the officers to 
check him; he has to account for it. 

“A suspended item in an accounting submitted by an operator is 
one either improperly supported, improperly approved, or has some 
other deficiency that requires suspension pending the supplying of 
proper supports, failing in which the item is disallowed. 

“36. It is also stipulated (without admitting his statements as 
facts) that Vaughn T. Harford, if introduced and sworn as {a witness 
in this cause, on his oath would testify as follows: 

7 * v 

“During the period from January 1, 1921, to December 31, 1923, 
there were received in the General Comptroller's Department for 
audit 106,829 voyage accountings from various Managing Operators 
acting as agents for the Merchant Fleet Corporation under various 
forms of Operating and Managing Agreements. 

“A voyage accounting, depending upon the length of th^ voyage, 
the number of ports of call and the amount of cargo loaded and 
discharged might consist of a comparatively few documents or a 
considerable volume of documents, such as detailed manifests of 
cargo carried, supported by bills of lading, disbursements invoices 
such as sea and port pay rolls, fuel, port charges and expenses, steve¬ 
doring and all other charges incurred in connection with the opera¬ 
tion of ships in the various trades. 

“The auditing of these accountings consisted of the verification 
of all freight as shown bv the manifest, the checking to determine 
that all revenue earned bv the vessel had been accounted for, also 
the verification of all disbursements in accordance with port sched¬ 
ules. tariffs, contracts and agreements, the listing of all itjems of a 
questionable nature and the forwarding of notice to the Managing 
Agent of the result of our audit together with information as to 
each item questioned. 

90 “After audit the voyage accountings were forwarded to the 
Accounting Division for recording on the Merchant Fleet Cor- 

poration books. The items questioned in the audit were subsequently 
handled with the managing agent either through correspondence, 
supplementary accountings or recorded in the account maintained on 
the Merchant Fleet Corporation books to record such items pending 
settlement. 


“37. It is also stipulated (without admitting his statements as 
facts) that Glenn Rose, if introduced and sworn as a witness in this 
cause, on his oath would testify as follows: 

“I was employed in the Managing Agents Accounts Reconciliation 
Section, Accounting Department, United States Shipping Board 
Emergency Fleet Corporation, from the time that section | was first 
organized early 1922 until I was transferred to the General Account¬ 
ing Office June 12, 1927. 

“The Managing Agents Accounts Reconciliation Section was or¬ 
ganized for the purpose of analyzing and reconciling the control 
accounts carried on Fleet Corporation books with the control ac¬ 
counts kept by over 300 managing agents—operators of merchant 



72 U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 


vessels assigned to them—and for the further purpose of obtaining 
final accountings from the agents covering all open items on their 
books. At the time of the organization of this section the majority 
of the managing agents of such vessels were already in an inactive 
status and it was necessary that this work be done in order that a 
final statement of account between the Fleet Corporation and each 
of its agents might be prepared. The principal items reflected in 
these control accounts on Fleet Corporation books consisted in (a) 
charges covering trust fund advances, (b) all items of earned vessel 
revenues, and (c) items suspended or disallowed in the audit of ves¬ 
sel expense accountings, which accountings had been previously 

91 submitted by the agents. The accounts included also credits 
covering (a) the remittance of trust fund advances or of rev¬ 
enue collections, (b) voyage expenses as accounted for by the agents, 
and (c) certain commissions and fees earned by the agents. 

“These accounts were merely open accounts carried with the agents 
reflecting as debits the items for which the agents were held respon¬ 
sible, and as credits the items that had been properly accounted for 
by the agents. Naturally such accounts always showed debit bal¬ 
ances on Fleet Corporation books, at least until the work of recon¬ 
ciliation had been completed, and the agents’ books cleared of all 
open items carried thereon by submission of final accountings for 
expenditures and by transfer of receivables to the books of the Fleet 
Corporation. As instances of the latter class of items there were 
usually a number of uncollected demurrage claims, freight claims, 
etc. (earned but uncollected items of vessel revenues), carried on the 
agents' books which had previously been charged against the agents 
on Fleet Corporation books. When such items were finally trans¬ 
ferred to the Fleet Corporation for collection the agents were cred¬ 
ited therewith. 

“After demand for settlement had been made upon the agent there 
were numerous instances wherein final settlement was merely delayed 
by reason of the inclusion in the Fleet Corporation statement of ac¬ 
count of certain individual items in connection with which there 
were some disputes as to responsibility. The Fleet Corporation pro¬ 
vided a means for affecting settlement of such disputed items by ap¬ 
pointing a Managing Agents Accounts Adjustment Committee with 
a Mr. U. J. Gendron in charge. Agents who questioned certain 
items in their accounts were invited to confer with the Committee. 
Many of the agents did appear before the Committee and in many 
cases a basis for settlement was found through compromise and 
settlements were made amicably and in a manner acceptable 

92 to both agent and Fleet Corporation. 

“As nearly as I can remember, there were originally about 
25 to 30 clerks employed in the Managing Agents Accounts Recon¬ 
ciliation Section when this work was first started. The big majority 
of the accounts were amicably settled within a reasonable length of 
time, but in connection with the more involved cases, representing 
accounts with long inactive agents, some of whom had never com¬ 
pleted the accounting for their agency transactions, the work involved 
in arriving at a final statement of account represented a long and 
arduous task and required a more than average ability on the part 
of the clerk handling such a case. Those in the section incapable of 
handling this class of work were transferred to other sections and 


U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 73 

; 

the number left in the Managing Agents Accounts Reconciliation 
Section was further reduced by resignations and voluntary transfers. 
At the time of my own transfer there were only four of us working 
on these old accounts and there were yet a number of agents accounts 
that had never been analyzed or handled with a view tb final 
settlement. j 

“The Sigsbee, Humphrey & Company. Inc., case was assigned to 
me about August 1,1926. The account included a number of charges 
covering items submitted in voyage accountings that had been dis¬ 
allowed in the audit thereof and which were subject to analysis and 
inclusion in the statement of account. It appeared that the agent’s 
books had been cleared of all items of vessel revenues and expense 
had been submitted by the agent. The account was subject tp credit 
in the amount that it might be determined that commissions had' 
actually been earned by the agent. | 

“All other agents had accepted the MO-4 agreement in substitu¬ 
tion of the MO-3, the Mo-4 agreement being made retroactive to the 
date each agent had commenced operations under the MO-3 agree¬ 
ment. j 

93 “In handling my assignment to this account I computed the 
net profits on voyages accountable under MO-3 agreement in 
accordance with accounting instructions issued thereunder, j I com¬ 
pleted a rough draft (in pencil) of the commission computations and 
final statement of account just prior to my transfer to the General 
Accounting Office, but in view of the fact that I was severing my 
connection with the Fleet Corporation, the Section Chief to whom I 
submitted the papers deemed it necessary that the same be thoroughly 
checked by someone who might be detailed to follow the cases through 
to a final settlement. About a year after I left the employ of the 
Fleet Corporation my services were loaned by the General Accounting 
Office to the Fleet Corporation for a term of about four months in 
connection with another case. I was then informed that there had 
been no opportunity to detail any one else to complete the Sigsbee, 
Humphrey & Co., Inc., case, the limited personnel having been fully 
employed on other equally important cases. I, therefore, again 
took the matter in charge, reviewed and revised my old work papers 
and had the statements typed under date of March 22, 19&8. This 
statement was then transmitted to the Legal Department for 
handling.” | 

Exhibit # 1 —Special Contract #6165 

This indenture made the 16th day of April, 1923, between the 
United States Shipping Board Emergency Fleet Corporation, a cor¬ 
poration organized and existing under the laws of the District of 
Columbia, party of the first part, and the United States of America, 
party of the second part, 

Witnesseth: j 

Whereas, by virtue of the Emergency Shipping Fund provisions 
of the Appropriation Act of Congress, approved June 15, j 1917, the 
President of the United States was authorized and empowered 
. 94 to engage in the construction and operation of ships and ship¬ 
ping as more fully set forth in said Act, and the President 
was further authorized by said Act of Congress and other subsequent 
Acts of Congress to utilize the appropriations made by the said Con- 





74 U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 


gress from that time down to the present time for the purpose of 
carrying out the Emergency Shipping Fund provisions of the said 
Appropriation Act of June 15,1917. and its supplements and amend¬ 
ments, and 

Whereas, pursuant to the said Act of June 15, 1917, and its 
supplements and amendments, the powers of the President were 
duly delegated to the United States Shipping Board and/or United 
States Shipping Board Emergency Fleet Corporation and the said 
last two mentioned bodies, pursuant to the powers in them vested 
by the said Act of Congress and in pursuance of the said duty of 
carrying on the construction and operation of ships and shipping 
used the moneys of the United States so appropriated in the pur¬ 
chase of goods, chattels, bonds secured by mortgage, bonds, notes, 
shares of stock, securities, contracts, personal property, claims and 
choses in action, including accounts against divers persons for the 
payment of money and all personal property of every kind and 
description whatsoever, and 

Whereas, the legal title to the said property above mentioned was 
taken and now stands in the name of the United States Shipping 
Board Emergency Fleet Corporation, party of the first part, but 
the said party of the first part has no beneficial ownership therein, 
but, on the contrary, the beneficial ownership in the same is, and 
always has been, in the United States of America since the same was 
so acquired by the party of the first part, and 

Whereas, the United States Shipping Board, pursuant to the 
powers and duties under the said Acts hereinbefore referred to, 
has ordered and directed that the legal title to all of the said prop¬ 
erty should be conveyed and become vested in the United 
95 States of America, party of the second part, to whom the 
same really belongs, and the United States Shipping Board 
Emergency Fleet Corporation, acting in its own capacity and also 
by express direction of said United States Shipping Board, desires 
by this deed to carry out the directions of the said Act of Congress 
and the said direction of the United States Shipping Board. 

Now, therefore, the party of the first part in consideration of the 
premises and of the sum of One Dollar ($1.00), lawful money of 
the United States, paid by the party of the second part, to the 
party of the first part, receipt of which is hereby acknowledged, 
has granted, bargained, sold, transferred, assigned, and conveyed 
and by these presents does grant, bargain, sell, transfer, assign, 
and convey unto the party of the second part, its successors and 
assigns forever all the goods, chattels, bonds secured by mortgage, 
bonds, notes, shares of stock, contracts, securities, claims, personal 
property, and choses in action, including accounts against divers 
persons" for the payment of money and all personal property of 
every kind and description whatsoever wherever the same may be 
situated, heretofore acquired by the party of the first part, and not 
heretofore disposed of by it, and now remaining under the disposi¬ 
tion or control of the party of the first part. 

To have and to hold the property hereinabove conveyed to the 
party of the second part, its successors and assigns forever. And 
the said party of the first part, its successors and assigns, do cove¬ 
nant and agree to and with the party of the second part, and its 
assigns, that it will, whenever requested so to do, make and execute 



U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 75 

I 

any and all such further deeds of conveyance and other documents 
as may be required by the party of the second part and its assigns 
for the further assurance to the party of the second part and its 
assigns of the title to any and all of the said property hereinabove 
referred to. 

96 In witness whereof, the party of the first part has caused 
its corporate seal to be hereunto affixed and these presents to 

be signed by its duly authorized officers the day and year first above 
written. 

Exhibit 2 

RESOLUTION ADOPTED BY THE UNITED STATES SHIPPING BOARD 

SEPTEMBER 30, 1921 

i 

Whereas, The Merchant Marine Act, 1920, provides that the power 
and authority thereby vested in the United States Shipping Board 
may be exercised either directly by the Board, or by it through the 
United States Shipping Board Emergency Fleet Corporation, except 
as therein otherwise specifically provided; and 

Whereas, In the opinion of the Shipping Board, the executive and 
personnel organization of the Emergency Fleet Corporation has been 
completed to such a standard of efficiency as to make it desirable that 
the United States Shipping Board should exercise through the United 
States Shipping Board Emergency Fleet Corporation various admin¬ 
istrative powers and functions, thus making it possible for the United 
States Shipping Board to devote its attention to study aijid determi¬ 
nation of the broad and constructive questions of policy relating tc 
the maintenance, development, and encouragement of the American 
Merchant Marine under the powers and duties imposed upon the 
United States Shipping Board by law: 

Therefore, be it Resolved, That it is the sense of the Uhited States 
Shipping Board that its Chairman should retire as President, and 
that its members should retire as Trustees of the said United States 
Shipping Board Emergency Fleet Corporation, and that there should 
forthwith be elected a separate President and a separate Board of 
Trustees for the said United States Shipping Board Emergency Fleet 
Corporation; and 

Be it further Resolved, That the power and authority tested in the 
Shipping Board by the Merchant Marine Act, 1920, shall until 

97 otherwise ordered by the Board, be exercised by jit, through 

the United States Shipping Board Emergency Fleet Corpora¬ 
tion in the following matters, and to the extent and in the manner 
hereinafter provided: j 

(1) The operation, maintenance, repair, and reconditioning of ves¬ 
sels provided that no established line shall be discontinued, or new 
line established, or allocation of passenger vessels made, |without the 
approval of the United States Shipping Board. 

(2) The completion or conclusion of any construction work upon 

vessels which has heretofore been begun or has been authorized by the 
United States Shipping Board. j 

(3) The sale of vessels (except to aliens) at such prices and on 
such terms and conditions as the United States Shipping Board may 
prescribe. 

(4) The operation and sale of housing projects, real estate, rail¬ 
road and other similar property, subject to confirmation by the 




76 TJ. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 


United States Shipping Board before any final contract of sale is 
made. 

(5) The operation and sale of dry docks; all sales to be subject to 
such terms and prices as may be established by the United States 
Shipping Board. 

(6) The custody and sale of all other property and materials. 

(7) All accounting for the United States Shipping Board Emer¬ 
gency Fleet Corporation. 

(8) Insurance and matters pertaining to the same. 

(9) The operation of all piers and pier facilities: provided that 
no pier or pier facilities shall be leased without prior authorization 
from the United States Shipping Board. 

(10) The leasing and rental of offices, warehouses, docks, and 
storage facilities. 

(11) All matters incidental to any of the foregoing, includ- 
98 ing the execution of contracts, charters, bills of sale, leases, 
deeds, and other instruments necessary or convenient to the 
exercise of the power and authority hereby conferred upon the United 
States Shipping Board Emergency Fleet Corporation; and 

Be it Further Resolved, That an accurate record shall be made of 
the proceedings of every meeting of the United States Shipping 
Board Emergency Fleet Corporation and a summary thereof trans¬ 
mitted to the Chairman and each Commissioner of the United States 
Shipping Board, and that notices of meetings of the Board of Trus¬ 
tees of said Emergency Fleet Corporation be duly sent to each 
member of the United States Shipping Board; and 

Be it Further Resolved, That the control of the United States 
Shipping Board Emergency Fleet Corporation shall remain with the 
United States Shipping Board, and that the President and each of 
the Trustees of the United States Shipping Board Emergency Fleet 
Corporation be and hereby are required to deposit with the Secre¬ 
tary of the United States Shipping Board their several resignations, 
for acceptance at the pleasure of the United States Shipping Board, 
and to deliver to the Secretary of the United States Shipping Board 
their several qualifying shares of stock in the United States Shipping 
Board Emergency Fleet Corporation, duly endorsed in blank for 
transfer. 

Exhibit 2-A 

RESOLUTION ADOPTED BY THE UNITED STATES SHIPPING BOARD 

JAN. 10, 1924 

7 

The resolution of the United States Shipping Board passed Sep¬ 
tember 30th, 1921, is hereby amended to read as follows: 

Whereas the Merchant Marine Act, 1920, provides that the power 
and authority thereby vested in the United States Shipping Board 
may be exercised either directly by the Board, or by it through the 
United States Shipping Board Emergency Fleet Corporation, except 
as therein otherwise specifically provided; and 
i 99 Whereas, in the opinion of the Shipping Board, the execu¬ 
tive and personnel organization of the Emergency Fleet Cor- 
oration is equipped to efficiently exercise through the United States 
hipping Board Emergency Fleet Corporation various administra- 










U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 77 


tive powers and functions, thus making it possible for!the United 
States Shipping Board to devote its attention to study aftd determi¬ 
nation of the broad and constructive questions of policy: relating to 
the maintenance, development, and encouragement of the American 
Merchant Marine, under the powers and duties imposed upon the 
United States Shipping Board by law. 

Therefore, be it Resolved, That it is the sense of the Uhited States 
Shipping Board that neither its Chairman nor any member of the 
Board should hold any office of the Emergency; Fleet Corporation, 
and that no member of any department of the Shipping Bbard should 
hold any office of the Emergency Fleet Corporation unless the Ship¬ 
ping Board and the Board of Trustees of the Emergency Fleet 
Corporation concur. 

Be it Further Resolved, That the power and authority vested in 
the Shipping Board by the Merchant Marine Act, 1920, shall be exer¬ 
cised by it through the Emergency Fleet Corporation in the following 
matters and to the extent and in the manner hereinafter provided: 

1. The selection, employment, or removal of all officers and em¬ 
ployees of the Emergency Fleet Corporation and their compensation 
shall be under the control of the Board of Trustees and/or officers 
of that corporation in the manner provided for in the By-Laws 
of said corporation, provided, however, that the salaries and other 
compensation of the officers and of the Trustees shall be subject to 
the approval of the Board; and provided further: the employment 
of counsel and all litigation shall remain under the control of the 
Shipping Board, which shall assign to the Emergency j Fleet Cor¬ 
poration such attorneys as may be needed by the President of 
the Emergency Fleet Corporation for the proper conduct of its 
business. 

100 2. The management, operation, maintenance and repair of 

vessels; including ordinary re-conditioning of vessels. 

3. The establishment and operation of lines and routed which the 
Shipping Board, under the powers conferred upon it by Section 7 
of the Merchant Marine Act, 1920, has heretofore authorized and 
directed or may hereafter authorize and direct; no !established 
line shall be discontinued, or new line established, or allocation of 
passenger vessels made, without the approval of the Uhited States 
Shipping Board. 

4. The completion or conclusion of any construction [work upon 
vessels which has heretofore been begun or has been authorized by 
the United States Shipping Board. 

5. The sale of vessels (except to aliens) at such prices aind on such 
terms and conditions as the United States Shipping Board may 
prescribe or approve. 

6. The operation and sale of housing projects, real estate, railroad 
and other similar property, subject to confirmation by the United 
States Shipping Board before any final contract of sale is made. 

7. The operation and sale of dry docks; all sales at £uch prices 

and on such terms and conditions as the United States Shipping 
Board may prescribe or approve. * 

8. The custody and sale of all other property and materials. 

9. All accounting for the Emergency Fleet Corporation. 


143081-37- 








78 U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 


10. The insurance of vessels and other property in its custody; 
and matters pertaining to insurance; subject, however, to the control 
and supervision of the Board, with respect to the placing of 
insurance. 

11. The operation of piers and pier facilities owned or leased by 
the Shipping Board and at present used by its vessels; and the 
operation of such othei^ piers and pier facilities as may be transferred 

to it by the Shipping Board. 

101 12. The disbursement and expenditure of all moneys arising 
out of operations; and such other funds as may be allotted 

to it from appropriations heretofore made to the Shipping Board; 
or which may hereafter be made to the Shipping Board; and also 
moneys arising from appropriations hereafter made by Congress 
for the exclusive use of the Emergency Fleet Corporation. 

13. The leasing and rental of offices, warehouses, docks, and storage 
facilities deemed essential by it for its business and for its terminal 
facilities; but no lease for a period exceeding one year shall be made 
without the consent of the Shipping Board. 

14. The settlement, including payments or collections, of all mat¬ 
ters arising out of the above-mentioned powers before or after the 
date of this resolution. 

15. All matters incidental to any of the foregoing powers, in¬ 
cluding the execution of contracts, charters, bills of sale, leases, and 
other instruments necessary or convenient to the exercise of such 
powers are hereby conferred upon the Emergency Fleet Corporation. 

Be it further resolved. That an accurate record shall be made of 
the proceedings of every meeting of the Trustees of the Emergency 
Fleet Corporation and a summary thereof transmitted to the Chair¬ 
man and each Commissioner of the Shipping Board. 

Be it further resolved, That the voting power upon the stock and 
the control of the United States Shipping Board Emergency Fleet 
Corporation shall remain with the United States Shipping Board, 
according to law; and the President and each of the Trustees of the 
Emergency Fleet Corporation shall deliver to the Secretary of the 
Shipping Board their several qualifying shares of stoclc in the 
United States Shipping Board Emergency Fleet Corporation, duly 
endorsed in blank for transfer: and the officers of the Emer- 

102 gency Fleet Corporation shall deliver to the President of the 
Emergency Fleet Corporation their several resignations for 

acceptance at his pleasure: and the President and Trustees of the 
Emergency Fleet Corporation shall deliver to the Secretary of the 
Shipping Board their several resignations for acceptance at the 
pleasure of the Shipping Board. 

Be it further resolved. That in passing this resolution the United 
States Shipping Board declares that it is its policy to delegate to 
the Emergency Fleet Corporation all power, authority, and control 
essential to the full and efficient operation by it of all lines at present 
operated or which may be hereafter authorized. All vessels now 
being operated are hereby allocated to the Emergency Fleet Cor¬ 
poration: and, other vessels of the Board will be allocated to it when 
reasonably required for the equipment of present lines or lines here¬ 
after authorized. All vessels of the Shipping Board not in use are 





U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 79 

1 

also placed in the custody and care of the Emergency Fleet 
Corporation. 

Be it further resolved. That nothing herein contained shall be 
construed as a transfer of title or ownership of vessels, docks, or 
other property, real or personal, belonging to the United States; the 
possession and control by the Emergency Fleet Corporation of any 
vessels or other property delivered to it under this resolution shall 
be solely that of an agent, with limited powers. All contracts and 
agreements made by the United States Shipping Board jEmergency 
Fleet Corporation shall clearly show that the same are contracts 
and agreements of the United States Shipping Board acting through 
the United States Shipping Board Emergency Fleet Corporation 
as its authorized agent. 

Be it further resolved, The right and duty of the Shipping Board 
to exercise any and all powers of supervision and control vested in 
or imposed upon it by law remain in full force and effect. 

Be it further resolved, That all resolutions, general or special 
orders, or office memoranda of the United States Shipping Board 
heretofore passed, inconsistent with the resolution of September 30, 
1921. as amended hereby, are repealed, in so far as they conflict with 
the provisions of this resolution. 

103 Exhibit 3 

RESOLUTION ADOPTED BY THE UNITED STATES SHIPPING BOAI0 DECEMBER 

22, 1924 

Whereas, it is the desire of the United States Shipping Board, as 
far as possible, to place the conduct of its shipping business on a 
basis approximating commercial precedent and practices, and 

Whereas, it is the declared purpose of the Board that in the opera¬ 
tion of ships and handling of government property by| the Emer¬ 
gency Fleet Corporation, that the Emergency Fleet Corporation shall 
report to the Shipping Board as to a board of directors exercising 
the usual advisory capacity in the determination of broad policies 
and holding the management responsible for results, ip the same 
manner as large business organizations function; and in|order more 
clearly to define this relationship between the Shipping! Board and 
the Emergency Fleet Corporation in line with the Board’s desire 
as above expressed. 

Therefore be it Resolved, That the resolution of the United States 
Shipping Board passed September 30, 1921, as amended January 
10th, 1924, be and the same is hereby amended to read as| follows: 

Whereas, the Merchant Marine Act, 1920, provides that the power 
and authority thereby vested in the United States Shipping Board may 
be exercised either directly by the Board, or by it through the United 
States Shipping Board Emergency Fleet Corporation* except as 
therein otherwise specifically provided, and 

Whereas, in the opinion of the Shipping Board, the executive and 
personnel organization of the Emergency Fleet Corporation is 
equipped to efficiently exercise through the United States Shipping 
Board Emergency Fleet Corporation various administrative powers 
and functions, thus making it possible for the United $tates Ship- 



30 *J. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 


pin" Board to devote its attention to study and determination of the 
broad and constructive questions of policy relating to the main¬ 
tenance, development and encouragement of the American 

104 Merchant Marine, under the powers and duties imposed upon 
the United States Shipping Board by law. 

Therefore be it Resolved. That it is the sense of the United States 
Shipping Board that neither its Chairman nor any member of the 
Board should hold any office of the Emergency Fleet Corporation, 
and that no member of any department of the Shipping Board 
should hold any office of the Emergency Fleet Corporation unless the 
Shipping Board and the Board of Trustees of the Emergency Fleet 
Corporation concur. 

Be it further Resolved. That the power and authority vested in 
the Shipping Board by the Merchant Marine Act, 1920, shall be 
exercised by it through the Emergency Fleet Corporation in the 
following matters, and to the extent and in the manner hereinafter 
provided: 

1. The selection, employment, or removal of all officers and em¬ 
ployees of the Emergency Fleet Corporation and their compensation 
shall be under the control of the Board of Trustees and/or officers 
of that corporation in the manner provided for in the By-Laws of 
said corporation, provided, however, that the salaries and other com¬ 
pensation of the officers and of the Trustees shall be subject to the 
approval of the Board, and provided further, that the selection, 
employment, or removal of such attorneys as are engaged in handling 
construction claims or litigation arising from the same shall be 
subject to the approval of the Board. 

2. The management, operation, maintenance, and repair of vessels. 

3. In accordance with the provisions of Section 7 of the Merchant 
Marine Act, 1920. the Shipping Board will determine the trade 
routes to be served. The Emergency Fleet Corporation will make 
such disposition and allocation of the vessels to serve these routes 

as will insure efficient and economical operations. 

105 4. The completion or conclusion of any construction, or re¬ 
conditioning work upon vessel which has heretofore been or 

may be authorized by the United States Shipping Board. 

5. The sale of vessels on terms and conditions laid down by the 
Board and at such prices as the Board approves. 

6. The operation and sale of housing projects, real estate, railroad, 
and other similar property, as approved by the Board. 

7. The operation and sale of dry docks as approved by the Board. 

8. The custody and sale of all other propertv and materials. 

9. All accounting for the Emergency Fleet Corporation. 

10. The insurance of vessels and other property in its custody; 
and matters pertaining to such insurance. 

11. The management and physical operation of piers, and pier 
warehouses and terminal facilities owned by or assigned to the 
Shipping Board. 

12. The leasing and rental of offices, warehouses, docks, and storage 
facilities deemed essential by it for its business and for its terminal 
facilities. 

13. The disbursement and expenditure of all moneys arising out of 
operations, or otherwise in connection with the delegated powers; 




U. S. SHIPPING BOARD YS. AETNA CASUALTY AND SURETY CO. 

also moneys arising 1 from appropriations heretofore or hereafter 
made by Congress for the use and expense of the Emergency Fleet 
Corporation, as allotted by the Shipping Board, subject to the limita¬ 
tions of any or all acts of Congress pertaining thereto. 

14. The settlement, including payments or collections! of all mat¬ 
ters arising out of the above mentioned powers before or after the 
date of this resolution. 

15. All matters incidental to any of the foregoing poivers, includ¬ 
ing the negotiation, preparation and execution of contracts, char¬ 
ters. bills of sale, leases, operating agreement^ and other 

10G instruments necessary or convenient to the exercise of such 
powers are hereby conferred upon the Emergency Fleet 
corporation. 

Be it Further Resolved, That an accurate record shall be made 
of the proceedings of every meeting of the Trustees of the Emer¬ 
gency Fleet Corporation and a summary thereof be transmitted to 
the Chairman and each Commissioner of the Shipping Board. 

Be it Further Resolved, That the voting power upon the stock 
and the control of the United States Shipping Board Emergency 
Fleet Corporation shall remain with the LTnited States Shipping! 
Board, according to law; and the President and each of ithe Trustees 
of the Emergency Fleet Corporation shall deliver to tjie Secretary 
of the Shipping Board their several qualifying shared of stock in 
the United States Shipping Board Emergency Fleet Corporation, 
duly endorsed in blank for transfer; and the officers of the Emer¬ 
gency Fleet Corporation shall deliver to the President of the Emer¬ 
gency Fleet Corporation their several resignations for Acceptance at 
his pleasure; and the President and Trustees of the Emergency Fleet 
Corporation shall deliver to the Secretary of the Shipping Board 
their several resignations for acceptance at the pleasure of the 
Shipping Board. 

Be it Further Resolved, That in passing this resolution the United 
States Shipping Board declares that it is its policy tp delegate to 
the Emergency Fleet Corporation, all power, authority and control 
essential to the full and efficient operation by it of all linjes at present 
operated or which may be hereafter authorized, and the full per¬ 
formance of all powers and authority hereby delegated. All ves¬ 
sels, whether active or inactive, are hereby placed in the 5 custody and 
care of the Emergency Fleet Corporation. 

Be it Further Resolved, That nothing herein contained shall 
be construed as a transfer of title or ownership of vessels, docks or 
other property, real or personal, belonging to the United 
107 States; the possession and control by the Emergency Fleet 
Corporation of any vessels or other property delivered to it 
under this resolution shall be solely that of an agent, with limited 
powers. All contracts, and agreements made by the touted States 
Shipping Board Emergency Fleet Corporation shall dearly show 
that the same are contracts and agreements of the Ignited States 
Shipping Board acting through the United States Shipping Board 
Emergency Fleet Corporation as its authorized agent. 

Be it Further Resolved, The right and duty of the Shipping Board 
to exercise any and all powers of supervision and control vested in 
or imposed upon it by law remain in full force and effect. 









g2 U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 

Be it Further Resolved. That all resolutions, general or special 
orders or office memoranda of the United States Shipping Board 
heretofore passed, inconsistent with the resolution of January 10. 
1924 as amended hereby, are repealed: insofar as they conflict with 
the provisions of this resolution. 

Exhibit 4 

RESOLUTION ADOPTED BY THE UNITED STATES SHIPPING BOARD ON OCTOBER 

1. 101*3 

Whereas, in the judgment of this Board, the powers at present 
exercised by it through the Emergency Fleet Corporation, should 
be exercised under a more definite and direct supervision of this 
Board than has been practicable under Resolutions at present in 
force; 

Be it Resolved. The Resolutions of the United States Shipping 
Board adopted by it on January 10. 1924 and December 22, 1924, 
respectively, each of which confers powers on the Emergency Fleet 
Corporation and amends a Resolution of this Board dated Septem¬ 
ber 30, 1921, be and each of them is hereby repealed; Provided, 
however, all action heretofore taken bv the Emergency Fleet Cor- 
poration pursuant to and within the limitations of the powers 
therein granted, shall be given full force and effect. 

108 Be it Further Resolved. That all that part of the Resolu¬ 
tion of the United States Shipping Board adopted Septem¬ 
ber 30. 1921. set forth below, be and the same is hereby revived and 
shall henceforth, until the further order of this Board, have full 
force and effect; the part thus re-adopted being that part reading 
as follows: 

44 Be it Further Resolved. That the power and authority vested in 
the Shipping Board by the Merchant Marine Act, 1920. shall until 
otheriwse ordered bv the Board, be exercised bv it through the 
United States Shipping Board Emergency Fleet Corporation in 
the following matters, and to the extent and in the manner here¬ 
inafter provided: 

“(1) The operation, maintenance, repair and reconditioning of 
vessels, provided that no established line shall be discontinued, or 
new line established, or allocation of passenger vessels made, without 
the approval of the United States Shipping Board. 

44 (2) The completion or conclusion of any construction work upon 
vessels which has heretofore been begun or has been authorized by 
the United States Shipping Board. 

44 (3) The sale of vessels (except to aliens) at such prices and on 
such terms and conditions as the United States Shipping Board may 
prescribe. 

44 (4) The operation and sale of housing projects, real estate, rail¬ 
road and other similar property, subject to confirmation by the 
United States Shipping Board before any final contract of sale is 
made. 

44 (5) The operation and sale of dry docks; all sales to be subject 
to such terms and prices as may be established by the United States 
Shipping Board. 



U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 83 


“(6) The custody and sale of all other property and materials. 

“(7) All accounting for the United States Shipping Board Emer¬ 
gency Fleet Corporation. 

109 “(8) Insurance and matters pertaining to the sarde. 

“(9) The operation of all piers and pier facilities; pro¬ 
vided that no pier or pier facilities shall be leased without prior 
authorization from the United States Shipping Board. 

“(10) The leasing and rental of offices, warehouses, dock£, and stor¬ 
age facilities. 

“(11) All matters incidental to any of the foregoing^ including 
the execution of contracts, charters, bills of sale, leases,;deeds, ana 
other instruments necessary or convenient to the exercise of the power 
and authority hereby conferred upon the United States Shipping 
Board Emergency Fleet Corporation; and 

“Be it Further Resolved, That an accurate record shall be made of 


the proceedings of every meeting of the United Stated Shipping 
Board Emergency Fleet Corporation and a summary thereof trans¬ 
mitted to the Chairman and each Commissioner of the Uiiited States 


Shipping Board, and that notices of meetings of the Board of Trus¬ 
tees of said Emergency Fleet Corporation be duly sent to each mem¬ 
ber of the United States Shipping Board; and 

“Be it Further Resolved, That the control of the Uijited States 
Shipping Board Emergency Fleet Corporation shall remain with 
the United States Shipping Board, and that the President and each 
of the Trustees of the United States Shipping Board Emergency 
Fleet Corporation be and hereby are required to deposit wjith the Sec- . 
retary of the United States Shipping Board their several resignations 
for acceptance at the pleasure of the United States Shipping Board, 
and to deliver to the Secretary of the United States Shipping Board 
their several qualifying shares of stock in the Uijiited States 
110 Shipping Board Emergency Fleet Corporation, duly endorsed 
in blank for transfer.” j 

Be it Further Resolved. This Resolution shall be effective from 
the time of its passage, and the Secretary is directed t6 deliver at 
once a certified copy thereof to the office of the President of the 
Emergency Fleet Corporation, and henceforth the activities of that 
Corporation shall be based exclusively upon and within its provisions. 

i 

! 

Exhibit 5 

AprIl 8 , 1921. 

From: District Auditor, Room 818, 45 Broadway, New tork, N. Y. 
To: Sigsbee, Humphrey & Co., 23 So. William St., New York, N. Y. 
Subject: Compensation. 

1. Referring to recent conversation between Mr. Sigsbee and the 
writer, will advise that we are in receipt of instructions from the 
General Office, to the effect that we are to withhold Compensation 
due your Company under the M. O. 4 agreement, in sufficient 
amount to protect the Board against overpayment under the M. O. 3 
contract which from the figures in our possession is approximately 
$50,000.00. 

2. This, of course, is only to be withheld pending a definite agree¬ 
ment being reached between your Company and the General Comp¬ 
troller’s office at Washington. 


i 

i 





34 U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 


3. Any amount clue your Company, in excess of the amount appar¬ 
ently over-paid under the M. O. 3 agreement, for Compensation 
due you under the M. 0. 4 agreement, on voyages other than those 
involved in the controversy will be paid to you as promptly as 
possible. 

By Direction of the District Comptroller: 

E. G. O’Brien. District Auditor . 

111 Exhibit 6 

Aetna Casualty & Surety Company, April 15, 1921. 

Hartford , Connecticut . 

Gentlemen: Your company is surety on bonds of Managers 
and/or Operators of vessels under the ownership and control of the 
United States Shippiiig Board Emergency Fleet Corporation. The 
Corporation has decided on changing the basing of these bonds from 
the number of vessels assigned to deadweight tonnage as shown 
in the following schedule: $100,000 bond up to fifty thousand dead¬ 
weight tons; $250,000 bond for fifty thousand to one hundred and 
fifty thousand deadweight tons; $500,000 bond for one hundred and 
fifty thousand to two hundred and fifty thousand deadweight tons; 
and $750,000 bond for over and above two hundred and fifty thou¬ 
sand deadweight tons. The Corporation will from time to time 
desire to reduce the penal sum of these bonds. To effect this reduc¬ 
tion without the necessity of executing new bonds a form of rider 
has been prepared which we submit to you for your consideration. 

You are surety on the bonds of Sigsbee. Humphrey & Company as 
managers and/or operators of vessels under the ownership and/or 
control of the United States Shipping Board Emergency Fleet Cor¬ 
poration. You are hereby notified that the Corporation desires to 
have the amount of said bond reduced from $500,000 to $100,000 
effective thirty days from the receipt of this notice (or May 15th). 

Your liability for any default of the manager which occur prior 
to the date of such reduction shall be the full amount of the bond 
even if those defaults are discovered after the date of the reduction. 

If the form of this agreement meets with your approval, kindly 
execute enclosed rider in duplicate, forwarding same to us and 
we will return one copv, properly executed, to you for your 

112 files. 

Very truly yours, 

R. W. Bolling. Treasurer . 

Exhibit 7 

Sigsbee, Humphrey & Company, April 19,1921. 

23 South ’William Street , New York , N. Y. 

Gentlemen: For your information the new schedule for the bas¬ 
ing of operator’s bonds was approved by the Chairman of the Ship¬ 
ping Board under date of April 6, and" in accordance therewith we 
nave notified the Aetna Casualty & Surety Company, the surety on 
your bond dated January 27,1920, in the amount of $500,000 to reduce 
the amount of this bond to $100,000, effective as of May 15, 1921, and 
to execute a rider or supplemental agreement reducing their liability 
on the original bond to $100,000. 



XJ. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. g5 

We are attaching herewith copy of our notice to the bonding com¬ 
pany, together with a copy of the proposed supplemental agree¬ 
ment, and would suggest that you get in touch with the bonding com¬ 
pany and execute this agreement as soon as possible. 

Yours very truly, 

U. J. Gexdrqx, 

Manager, Contract Bureau. 
By J. A. Kluckex, 

Head, Operations Sales Section. 

Exhibit 8 

U. J. Gendrox. May 14th, 1021. 

Manager. Contract Bureau , 

Division of Operations, Washington, D. C. 

Dear Sir: Replying to your letter of April 19th, we took up with 
the Aetna Casualty & Surety Company, the question of reducing 
bond from $500,000 to $100,000. The Aetna Casualty & Surety 
113 Company, however, required that we allow to remain in their 
custody, the same amount of collateral on the $100,000 bond as 
we had deposited with them for the $500,000 bond. We,j therefore, 
had the new bond for $100,000 executed by the American Surety 
Company, and enclose herewith their bond for this amountj, and trust 
that you will find this in order. 

The Aetna Casualty & Surety Company has agreed to cancel their 
$500,000 bond pro rata, and our broker, W. R. Harper, |8*2 Beaver 
Street, will make the necessary return premium adjustment with 
the Board in this connection promptly. 

Trusting that the above meets with your approval, we remain. 
Yours very truly, 

Sigsbee. Humphrey & Company, Inc., 
By (Sgd.) H. D. Stitt, Treasurer. 

Exhibit 9 

Philadelphia Office New York Office 

714 Widener Building 82 Be;kver Street 

Phone: Walnut 30-50 Telephone: Hanover 875 

W. R. Harper j 

i 

Insurance 

l 

i 

New York, May 14th, 1921. 

j « 

Mr. U. J. Gexdrox, 

Manager, Contract Bureau, 

U. S. Shipping Board, Emergency Fleet Corp., 

Washington, D. C. 

(Attention—Mr. H. C. Klucken.) 

BOXD—SIGSBEE. HUMPHREY & CO. AS OPERATORS AND/OR MAXAGERS 

Dear Sir : Your letter of April 19th addressed to Messrs. Sigsbee, 
Humphrey & Company was turned over to me as their insurance 






— 


gg U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 


broker, and the matter was promptly taken up with the Aetna 
Casualty & Surety Company, who, however, delayed giving any 
answer as to the conditions under which they were willing to make 
the change, uiitil May 12th. Their proposition at this time 

114 appeared burdensome to Messrs. Sigsbee, Humphrey & Com¬ 
pany. and in this contingency we took the matter up with the 

American Surety Company, who were willing to write the bond 
for the reduced amount in accordance with the ideas of Messrs. 
Sigsbee, Humphrey & Company. The American Surety Company 
have, therefore, today issued such bond for $100,000 effective as of 
May 14th, 1921, which I have passed on to Messrs. Sigsbee, Humphrey 
& Company for transmission to you. 

Under the circumstances, the Aetna Casualty & Surety Company 
have advised me that they are willing to cancel their bond pro rata, 
and as soon as you receive the new bond from Messrs. Sigsbee, 
Humphrey & Company, I will ask that you advise the Aetna Cas¬ 
ualty & Surety Company that it is agreeable to you that their lia¬ 
bility under tlieir bond should be terminated, as respects all trans¬ 
actions occurring on and after May 15th, 1921. and that you request 
cancellation as of that date in accordance with their agreement with 
my office. If you will then send me a copy of your letter of advice 
to the Aetna Casualty & Surety Company, I will arrange to collect 
from them and remit to you promptly the return premium under the 
old bond, and will then bill you for the premium under the new 
bond. 

Yours very truly, 

(Sgd.) W. R. Harper. 

By (Sgd.) E. PoWDERMAKER. 

Exhibit 10 

Aetna Casualty & Surety Co., 

100 'William Street , 

New York City. 

SUBJ.: BOND —SIGSBEE, HUMPHREY & COMPANY 

Gentlemen : You 1 are hereby requested to cancel the bond in the 
sum of $500,000.00, dated January 27th, 1920. on which you 

115 are surety with the Sigsbee Humphrey Companv, as principal, 

as of May 14th, 1921. ~ 

You will, of course, be held responsible for any failure on the part 
of your principal to account for any and all moneys which it will 
have received, or should have received, up to and including May 
14th, 1921, the cancellation date. 

Please arrange to forward check for unexpired premium to the 
writer with full explanation as to what it covers. 

Yours very truly, 


R. W. Bolling, Treasurer. 




U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. g7 


Exhibit 11 

SEPt. 9, 1921. 

From: J. E. Fetzer, Law Division. 

To: N. A. Smyth and S. H. Freund. 

Subject: Sigsbee, Humphrey & Co. 

Upon considerable study of this situation, including tljie examina¬ 
tion of File No. 582-155, treneral Correspondence file of D. S. Mor¬ 
rison, Chief Accountant, and the Docket file of the Shipping Board, 
I have come to the following conclusion and make tne following 
recommendations: 

1. All vessels sailing subsequent to March 1, 1920, regardless of 
the date of assignment and, or, delivery certificates, up to and includ¬ 
ing the completion of the round voyage of said vessels prior to 
February 10. 1921, should be accounted for under thq terms and 
provisions of the MO-3 agreement of March 4,1920. 

2. The expense of lay up periods of vessels subject to the MO-3 
agreement, including cost of repairs, maintenance, also time waiting 
for cargo, etc., must be included in the account for th^ purpose of 
determining net profits; subject, however, to allowance for any loss 
of time and expenses due to any arbitarary control exerbised by the 
Board, excluding the operator from possession, control, ipanagement,* 

or operation of the vessel during such period. 

116 3. The cost for fuel oil and delays incurred waiting for 

delivery of fuel oil on account of Shipping Boafd contracts 
with the Standard Oil Company, must be borne by the operator on 
account of its express agreement contained in paragraph 12 of the 
MO-3 agreement. 

4. The method of determining commissions under sub-paragraph 
d of paragraph 11 of the MO-3 agreement is a matter which must be 
worked out by negotiation, and it is recommended thatjthe business 
of all vessels and all voyages for the entire period should be made 
the basis for this adjustment, rather than effecting settlement either 
on separate voyage or separate vessel method. 

There are numerous other questions involved in thisiwhole situa¬ 
tion which will require further investigation and consideration, and 
the whole matter seems to be one upon which various coiicessions will 
have to be made by each party from the stand heretofore respectively 
adhered to. 

Prior to March 1, 1920, several ships had been assigned to Sigsbee, 
Humphrey & Company for management and operation under M2 
and 02 agreements. On March 4. 1920. a standard foirm of MO-3 
Agreement between the Board and the Company \yas executed, 
whereby the company was appointed and agreed to act as “the agent” 
of the Shipping Board for the management, operation, and conduct 
of the business of such ships as the Board had theretofore assigned 
and might thereafter assign to the company for such purpose (para¬ 
graphs 1 and 2, MO-3). Nothing in this MO-3 Agreement specifi¬ 
cally provided for the accounting to be made for voykges of ships 
which were en route on March 1, 1920, but it was mutually under¬ 
stood and agreed by the agents and the Board (only by parol, how- 






38 U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 


ever, though there is no contention concerning this arrangement) 
that all voyages and business with respect to ships which were 
en route on March 1. 1920. would be accounted for and settle- 

117 ments made under the previous M-2 and 0-2 Agreements on 
the return of the vessel to United States port, and thereupon 

the vessel would, unless redelivered to the Board, become subject to 
the MO-3 Agreement. 

In the MoM Agreement with Sigsbee. Humphrey & Company, 
which was executed as of February 10. 1921. it was expressly stip¬ 
ulated (paragraph 17) that the MO-3 Agreement was thereby ab¬ 
rogated and the MO-1 Agreement was made retroactive to March 1, 
1920, “Except as to vessels that sailed subsequent to March 1, 1920, 
and completed their round voyage (U. S. to foreign port and return 
to U. S.) prior to the signing of this Agreement.” 

Numerous vessels had been in the possession of the Company from 
time to time and numerous voyages were commenced and completed 
between March 1, 1920, and February 10, 1921. Various questions 
are involved concerning the time during which vessels were under 
the MO-3 Agreement and the time which thev were under other 

t * 

agreements. The principal dispute concerns the accounting with 
respect to the S. S. “West Lasliaway.” The facts concerning this 
vessel are as follows: It had been assigned to the company under 
M-2 and 0-2 Agreements and delivered under these Agreements on 
October 24. 1919. It had commenced loading for outward voyage 
on Februarv 10. 1920. Whether or not the loading had been com- 
pleted on or before March 1. 1920. does not appear and, in view of 
paragraph. 17 of the MO-4 Agreement, seems to be immaterial. The 
essential fact is that this vessel sailed on March 4, 1920. Under the 
first two paragraphs of the MO-3 Agreement this vessel is clearly 
subject to the MO-3 Agreement except for the mutual parol under¬ 
standing that the vovages on which vessels were en route on March 
first would be completed and accounted for under M-2 and 0-2 
Agreements. Whether this vessel should have been accounted for 
under the M-2 and 0-2 Agreements or under the MO-3 Agreement 
may have been a debatable question at any time between the signing 
of the MO-3 Agreement and the signing of the MO-4 Agreement, 
but upon the execution of the MO-4 Agreement on February 

118 10. 1921. such question concerning the status of this vessel 
was settled by the clause in the 17th paragraph of the MO-4 

Agreement, the vessel being one that sailed subsequent to March 1, 
1920. 


It may be contended that by a literal construction of this para¬ 
graph 17 of the MO-4 Agreement the MO-3 Agreement was abso¬ 
lutely abrogated and canceled, the MO-4 was substituted to cover all 
transactions since March 1. 1920. except with respect to all vessels 
which sailed subsequent to March 1, 1920, and returned prior to 
February 10, 1921, and that these must be excluded from both MO-3 
and MOMt Agreements. In support of such contention it would be 
pointed out that there is no express stipulation contained in the para¬ 
graph which made such vessels subject to the MO-3 Agreement. Un¬ 
der such construction, the S. S. “West Lashaway” (as well as other 
vessels), would be exempt from both MO-3 and MO-4 and would 
therefore have to be accounted for, if at all, under the M-2 and 0>-2 
Agreements. 


U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. g9 

Negotiations were commenced some time prior to the first of De¬ 
cember 1920 for the execution of the MO-4 Agreement to i|eplace the 
MO-3 Agreement. The files contain correspondence clearly showing 
the reluctance of Sigsbee, Humphrey & Co. to sign the MO-4 Agree¬ 
ment, especially on account of its retroactive feature. It appears that 
they offered, about the first of December, to execute the MO-4 Agree¬ 
ment with the proviso that they should be entitled to all ithe profits 
which had been earned under and in accordance with the terms of 
the MO-3 Agreement with respect to vessels which sailed Subsequent 
to March 1, 1920. They refused to relinquish their claims to profits 
earned under the MO-3 Agreement while it was in forced On Jan¬ 
uary 31, a comparative statement of fees and commissions in favor 
of Sigsbee, Humphrey & Co. on vessels that sailed subsequent to 
March 1, 1920. with respect to the terms of each form of agreement 
(MO-3 and MO-4), was submitted as follows: 

Fees&comib. 
under MO-3 


4,674.03 
11,107. $5 
29,690.91 
58,312.35 
4S, 572.18 
40,494.93 
47,960.57 
11.918-48 
22,578.88 
11,438.27 

$296,828.45 

■ ■■ I 

I 

This subject had the attention of the District Comptroller of New 
York, the Deputy-General Comptroller in Washington, the Assistant 
Director of Operations, Commissioner Teal, Commissioner Goff, 
the General Counsel, and the Board. 

The correspondence bearing upon the intention and understanding 
of the parties in this connection during January and about February 
1, 1921, clearly shows that both parties were considering the differ¬ 
ence in profits under the MO-3 and under the MO-4 Agreement, 
respectively, which would accrue to Sigsbee, Humphrey & Company, 
Inc., on vessels which sailed subsequent to March 1, llfeO, the differ¬ 
ence amounting to approximately $200,000 in favor of Sigsbee, 
Humphrey & Co. under the MO-3 Agreement. The records of the 
Board show that the proposition was clearly presented to it, and they 
deferred' action several times. Finally on February if, 1921, the 
Board, by a formal resolution, authorized the execution of the MO-4 
Agreement with the exception clause contained in paragraph IT. 

The proviso in the 17th paragraph of the MO-4 Agreement was 
intended to include and to fix the contractual status under the MO-3 
Agreement of all vessels that sailed subsequent to March 1, 1920, and 
returned prior to February 10, 1921, so that the accounting with re¬ 
spect to such vessels would be in accordance with the terms and pro¬ 
visions of the MO-3 Agreement. It seems to have been the clear! 

intention of the parties by the use of the words “sailed sub- 
120 sequent to March 1, 1920”, to exclude the voyage^ of all ves¬ 
sels which had sailed prior to that time and to include under 


119 Vessel 


Conshohocken.. 

Jadden. 

Eastern Dawn_. 
West Lashaway 

West Zeda. 

West Segovia... 

Cabegon. 

Cabegon. 

Salaam. 

West Lasbaway 

Total. 


Fees & comm, 
under MO-4 
retroactive to 
March 1,1920 


4,131.25 
4,180.63 
14,813.02 
19,086.62 
21,194.07 
17,776.09 
18,078.24 
4,228.60 
18,010.41 
4,982.37 

$126,481.30 





















g£ U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 


ever, though there is no contention concerning this arrangement) 
that all voyages and business with respect to ships which were 
en route on March 1. 1020, would be accounted for and settle- 
117 ments made under the previous M-2 and 0-2 Agreements on 
the return of tlie vessel to United States port, and thereupon 
the vessel would, unless redelivered to the Board, become subject to 
the MO-3 Agreement. 


In the Mo4 Agreement with Sigsbee. Humphrey & Company, 
which was executed as of February 10, 1921. it was expressly stip¬ 
ulated (paragraph 17) that the MO-3 Agreement was thereby ab¬ 
rogated and the MO-I Agreement was made retroactive to March 1, 
1920, “Except as to vessels that sailed subsequent to March 1, 1920, 
and completed their round voyage (U. S. to foreign port and return 
to U. S.) prior to the signing of this Agreement.” 

Numerous vessels had been in the possession of the Company from 
time to time and mmierous voyages were commenced and completed 
between March 1, 1920, and February 10, 1921. Various questions 
are involved concerning the time during which vessels were under 
the MO-3 Agreement and the time which they were under other 
agreements. The principal dispute concerns the accounting with 
respect to the S. S. “West Lashaway.” The facts concerning this 
vessel are as follows: It had been assigned to the company under 
M-2 and 0-2 Agreements and delivered under these Agreements on 
October 24. 1919. It had commenced loading for outward voyage 
on Februarv 10. 1920. Whether or not the loading had been com- 
pleted on or before March 1. 1920. does not appear and, in view of 
paragraph 17 of the MO-4 Agreement, seems to be immaterial. The 
essential fact is that this vessel sailed on March 4, 1920. Under the 
first two paragraphs of the MO-3 Agreement this vessel is clearly 
subject to the MO-3 Agreement except for the mutual parol under¬ 
standing that the vovages on which vessels were en route on March 
first would be completed and accounted for under M-2 and 0-2 
Agreements. Whether this vessel should have been accounted for 
under the M-2 and 0-2 Agreements or under the MO-3 Agreement 
may have been a debatable question at any time between the signing 
of the MO-3 Agreement and the signing of the M04: Agreement, 
but upon the execution of the MO-4 Agreement on February 
118 10, 1921. such question concerning the status of this vessel 

was settled by the clause in the 17tli paragraph of the MO-4 
Agreement, the vessel being one that sailed subsequent to March 1, 
1920. 

It may be contended that by a literal construction of this para¬ 
graph 17 of the M04 Agreement the MO-3 Agreement was abso¬ 
lutely abrogated and canceled, the MO-4 was substituted to cover all 
transactions since March 1. 1920. except with respect to all vessels 
which sailed subsequent to March 1, 1920, and returned prior to 
February 10, 1921, and that these must be excluded from both MO-3 
and M04 Agreements. In support of such contention it would be 
pointed out that there is no express stipulation contained in the para¬ 
graph which made such vessels subject to the MO-3 Agreement. Un¬ 
der such construction, the S. S. “West Lashaway” (as well as other 
vessels), would be exempt from both MO-3 and MO-4 and would 
therefore have to be accounted for, if at all, under the M-2 and 0-2 
Agreements. 




U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. g9 

Negotiations were commenced some time prior to the first of De¬ 
cember 1920 for the execution of the MO-4 Agreement to Replace the 
MO-3 Agreement. The files contain correspondence clearly showing 
the reluctance of Sigsbee, Humphrey & Co. to sign the MCJM: Agree¬ 
ment, especially on account of its retroactive feature. It appears that 
they offered, about the first of December, to execute the M(D^4 Agree¬ 
ment with the proviso that they should be entitled to all jthe profits 
which had been earned under and in accordance with thfe terms of 
the MO-3 Agreement with respect to vessels which sailed Subsequent 
to March 1, 1920. They refused to relinquish their claim$ to profits 
earned under the MO-3 Agreement while it was in forceJ On Jan¬ 
uary 31, a comparative statement of fees and commissioiis in favor 
of Sigsbee, Humphrey & Co. on vessels that sailed subsequent to 
March 1, 1920. with respect to the terms of each form of agreement 
(MO-3 and MO—1), was submitted as follows: 


119 


Vessel 


Conshohocken.. 

Jadden. 

Eastern Dawn.. 
West Lashaway 

West Zeda. 

West Segovia... 

Cabegon. 

Cabegon. 

Salaam. 

West Lashaway 

Total. 


Fees comm, 
under MO-3 


4,674.03 
11,197.85 
29,690.91 
58,312.35 
48.572.18 
40,494-93 
47,960. 57 
11.918.48 
22,578.88 
11,438.27 


-h- 

$296,828.45 


Fees & comm, 
under MO-4 
retroactive to 
March 1,1920 


4.13L25 

4,180.63 

14,813.02 

19,086.62 

21,194.07 

17,776.09 

18,078.24 

4,228.60 

18,010.41 

4,982.37 


$126,48L 30 


This subject had the attention of the District Comptroller of New 
York, the Deputy-General Comptroller in Washington, tpe Assistant 
Director of Operations, Commissioner Teal, Commissioner Goff, 
the General Counsel, and the Board. 

The correspondence bearing upon the intention and understanding 
of the parties in this connection during January and about February 
1, 1921, clearly shows that both parties were considering the differ¬ 
ence in profits under the MO-3 and under the MO-4 Agreement, 
respectively, which would accrue to Sigsbee, Humphrey & Company, 
Inc., on vessels which sailed subsequent to March 1, 1920| the differ¬ 
ence amounting to approximately $200,000 in favor pf Sigsbee, 
Humphrey & Co. under the MO-3 Agreement. The records of the 
Board show that the proposition was clearly presented to it, and they 
deferred' action several times. Finally on February 17, 1921, the 
Board, by a formal resolution, authorized the execution of the MO-4 
Agreement with the exception clause contained in paragraph 17. 

The proviso in the 17th paragraph of the MO-4 Agreement was 
intended to include and to fix the contractural status under the MO-3 
Agreement of all vessels that sailed subsequent to March i, 1920, and 
returned prior to February 10, 1921, so that the accounting with re¬ 
spect to such vessels would be in accordance with the terms and pro¬ 
visions of the MO-3 Agreement. It seems to have bePn the cleaif 
intention of the parties by the use of the words ^sailed sub- 
120 sequent to March 1, 1920”, to exclude the voyages of all ves¬ 
sels which had sailed prior to that time and to include under 


























90 U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 

MO-3 all business of vessels which sailed subsequent to March 1, 
1920, regardless of the state of the voyage in which they were at that 
time. 

A question has been raised by the Contract Bureau with respect to 
whether or not more than one voyage concluded between March 1, 
1920, and February 10, 1921, should be accounted for under MO-3. 
There is no expressed nor implied limitation with respect to the 
number of voyages to be included in this period, except that the 
round voyage and return to U. S. port must have been completed 
prior to February 10, 1921. If a vessel sailed on March 10, June 10, 
September 10, December 10, or made any other number of sailings 
after March 1, 1920, having sailed after March 1, 1920, it came within 
the proviso of paragraph IT and must be accounted for under the 
MO-3 Agreement with respect to all voyages completed with return 
to U. S. port prior to February 10,1921. The intention seems clearly 
to have been to account for all business completed between March 1, 
1920, and February 10, 1921, under the MO-3 Agreement. 

Another question involved pertains to the computation of the 
agents’ compensation^ whether it should be computed and paid on 
each separate voyage or for each vessel. The Agent contends for a 
settlement per voyage. The Comptroller has taken the position that 
the agent should not have the benefit of profitable voyages of a ship 
and the Government have to stand all the losses of an unprofitable 
voyage. To avoid such disadvantage to the Government the ac¬ 
counting instructions require that the losses of any particular vessel 
should be offset against the profits of such respective vessel. It may 
not be too late to calculate the total net compensation to be paid or 
allowed the agent on the basis of the entire business under the agree¬ 
ment—all ships and all voyages. 

According to the MO-3 Agreement the Agent is appointed 
121 for the management, operation, and conduct of the business 
of the vessels assigned to him. The arrangement constitutes 
a relationship of principal and agent to continue with respect to all 
vessels which may be assigned to the Agent for management and 
operation and for an indefinite duration of time. The Agreement 
may be terminated by either party, but no specific period of duration 
is provided for. The Agent agrees to collect all freights, advance all 
disbursements, deposit in a special trust fund all moneys collected, 
keep separate books of account exclusively for agency business. 

It was agreed, however, that “the compensation due the Agent shall 
be paid monthly.” The time and method of computation of compen¬ 
sation to be paid the Agent is set forth in paragraph No. 11 and con¬ 
sists of the following several items: 

“a. A fee of $200.00 per ship per month. 

“b. For the period that any ship is in actual operation or in com¬ 
mission, and for the purpose of making monthly payment, the Agent 
will receive a minimum compensation, in addition to the $200.00^per 
month, of 100 per dead-weight ton per month on ships under 5,000 
tons * * * (and other different amounts with respect to differ¬ 
ent sizes of ships). 

“d. The Agent will also receive a commission equal to ten percent 
of all net profits on an amount up to 500 per dead-weight ton per 
month. On all net profits in excess of 500 per dead-weight ton per 


U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY; CO. 91 

l 

| 

month, twenty percent up to $1.00 per dead-weight ton per month 
and twenty-five percent of all net profits in excess of $1.00 per dead¬ 
weight ton per month.” 

It seems clear from these several provisions of the contract that it 
was intended by the parties that monthly settlements were to be 
made with respect to the business. The agreement to; pay the 

122 Agent a fee of $200.00 per ship per month and the monthly 
payments based on the dead-weight tonnage in actual opera¬ 
tion or in commission seem sufficiently clear and definite to obviate 
any dispute as to the method of computing these amounts or the 
time of paying the same. It is not clear, however, that the Icommis- 
sion on profits (sub-paragraph d) is to be determined either per 
vessel or per voyage. The determination of net profits involves the 
dead-weight tonnage per month and voyages must be complete be¬ 
fore profits can be ascertained. Though it appears that a monthly 
period was intended to be used as a basis for computation, jit is not 
stated that payments of such commissions were to be mide each 
month. The impracticability of making a monthly calculation of 
this item is obvious. The contention that the profits under ihis par¬ 
agraph should be computed either per month or per separate voyage 
or per separate vessel can not be sustained on the terms of thjis clause 
nor the balance of the Agreement. Had it been intended to ;compute 
profits or losses separately with respect to each se parate vessel or 
each separate voyage, the agent to share in each particular profit, 
but not to be affected by any losses, it should have been so stipulated. 
The most reasonable conclusion seems to be that all the ndt profits 
should be determined from the final results of the entire enterprise, 
including all vessels and all voyages for the entire period during 
which the agreement was effective, the dead-weight tonnage mai? 
aged by the Agent in each month being used as one of the basic 
factors in calculating the proportion of all net profits to which the 
Agent is entitled as a commission. 

The Agents have contended that they should not be held responsibe 
for time lost or costs incurred, including fixed charges^ during 
periods when a vessel was not available to them for operation an§ 
earnings because of control exercised by the Government, which 
prevented them from loading, discharging, or operating tlie vessel, 
nor for the delay of any vessels due to the failure of the 

123 Shipping Board to promptly supply fuel oil under Paragraph 
12 of MO-3. These conditions affect the net profits land the 

resulting commissions under sub-paragraph “d” of paragraph 11 of 
the MO-3 Agreement, and the Agents contend that the tim£ so lost 
and expenses so incurred during such period be excluded in cal¬ 
culating the net profits of the vessel. 

The MO-3 Agreement expressly provides that the Agent shall pay 
all costs and expenses incident to the management, operation, and 
conduct of the business of the vessel, except as may be otherwise ex¬ 
pressly provided for in the Agreement. The Agents also agreed to 
exercise reasonable care to maintain the vessel and to procure the 
necessary labor and material to effect ordinary running repairs and 
replacements. It is clear from this entire Agreement that tile Agent 
was to have complete charge of the vessel and be responsible for its 
maintenance, management, and operation, from the time it; was de- 


92 U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 

livered to him up until the time it was redelivered by him to the 
Board. The Agent might be justified in his contention for the ex¬ 
clusion of expenses and losses incurred during lay up periods in cases 
where it was clearly evident that the delays, costs, and expenses were 
directly and solely diie to the requirements of the Board and where 
the control of the vessel was actually taken away from the Agent by 
the Board, and it was thereupon not available to the Agent for op¬ 
eration and earnings. This involves questions of fact, and unless it 
be clearly shown that the facts justifying such an exemption exist, 
the exemption should not be allowed. 

A memorandum of a conference held on March 3, 1921. between 
Messrs, Hyzer, Tweedale. Sigsbee, and Spooner (S. H. & Co. coun¬ 
sel), which purports to recite an understanding arrived at between 
the parties with respect to the accounting methods to be followed 
under MO-3 and MO-4 agreements, includes the following para¬ 
graph: 

124 “(c) That periods during which vessels under the operations 
of MO-3 were beyond the control of the Agents and, therefore, 

not available to the Agents for business and earnings, must be set 
up in separate accounts as day up’ periods, and the costs and ex¬ 
penses, including fixed charges, during such periods, must not be 
charged in voyage accounts, in determining net profits of a voyage 
or vessel.” 

It seems that even under such a liberal arrangement, without re¬ 
spect to the authority of these conferees to alter the written agree¬ 
ment, Sigsbee Humphrey & Co. would have to show that the vessel 
was beyond their control during such delays and lay up periods and 
were not available to them for business and earnings and that such 
conditions were due directly to the positive acts of the Shipping 
Board, and not due to ordinary circumstances which might exist in 
the general operation and management of the vessels nor to require¬ 
ments of the MO-3 agreement. It was expressly stipulated in the 
agreement that the agent should be “subject to the orders of the 
corporation as to all matters affecting the use of the vessels when 
the corporation deems the exercise of such power to be in the public 
interest.” 

In connection with the allowance of any deduction for such lay up 
periods and delays in reaching a settlement with Sigsbee. Humphrey 
& Co. on this matter, sub-paragraph b of paragraph 11 of the MO-3 
agreement should be borne in mind to the end that appropriate ac¬ 
counting should be made with respect to the minimum compensa¬ 
tion based on the dead-weight tonnage per month of ships in actual 
operation or in commission. If the ship was not in such control of 
the agent as to justify the inclusion of the cost and expenses of lay up 
periods and time lost, such time of all such ships should be computed 
and deducted from the minimum compensation based on dead-weight 
tonnage per month. 

125 With respect to their objections to delays caused by inability 
to procure adequate supplies of fuel oil, it was expressly 

stipulated in the Agreement that “in every case where the Corpora¬ 
tion shall have contracted for materials, fuel, supplies, or equipment, 
the Agent shall procure the same in pursuance of such contract and 
the directions of the Corporation.” There are no exceptions or con- 


U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 93 

ditions restricting the application of this arrangement and the Agent 
must be held to it. It was part of the contract, and the Board 
having made an exclusive contract with the Standard Oil Company 
for the supply of fuel oil for the Shipping Board vessels the Agent 
was obliged to conform to this arrangement. 

Before final settlement of this entire matter with! Sigsbee, 
Humphrey & Co. is reached, there will also be presented fiumerous 
other questions, one of which is the time at which the MQ4 Agree¬ 
ment became effective after the return of various vessels fij-om their 
respective voyages under the MO-3 Agreement. In some cases 
several weeks elapsed from the time of return of the vessel and its 
discharge of cargo to the time of redelivery to the Board or the 
commencement of its next voyage prior to February 10, 1921, such 
voyage not having been complete on February 10, 1921, Compensa¬ 
tion to be paid on a dead-weight tonnage per month basis under sub- 
paragraph d and the division of net profits under sub-paragraph b 
of paragraph 11 of the MO-3 Agreement are essential factors in 
this connection. 

As part of the revenue and earnings on which net profits were 
computed and commissions paid the Agent there was included in 
1920 $3,517,411.68 of Republic of Poland notes. The Board accepted 
these notes and now holds the same. They have not been paid, and 
it is understood that they are to be converted into six-year notes. 

There seems to be no ground upon which we can require any 
126 reconsideration of this matter with Sigsbee, Humphrey & Com¬ 
pany, although it is barely possible that the non-payment of 
these notes and their doubtful value might be made of some use in 
negotiating final settlement. 

John E. Fetter, 
Assistant Counsel. 

Exhibit 12 

i 

_ 1 

OFFICE MEMORANDUM NO. 29 

March 30,1922. 

To: Heads of Departments and Divisions, United States Shipping 

Board Emergency Fleet Corporation. 

Subject: Surety bonds and other guaranty obligations. 

1. Whenever it becomes apparent that there is, or whenever it 
appears likely that there will be, any default or breach of contract on 
the part of any party with whom the Fleet Corporation has had 
contractural relations, inquiry shall at once be made of the Treasurer 
whether there is any surety bond or other guarantee of performance 
applicable to the contract. If notified by the Treasurer tihat there 
is such a bond, the Law Department shall thereupon be notified with 
a full statement of the facts pertinent to the transactiori and the 
actual or anticipated default. Even upon suspicion arising that 
there is an actual or prospective default on account of which the 
surety or guarantor may be held liable, without waiting tp infirm 
all facts, the Law Department should be promptly advised and/or 
conferred with so that the Law Department may determine imme¬ 
diately whether any formal steps are then necessary to protect our 
rights under the bond. 

143081—37- 7 




94 U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 

2. The auditors and accountants under the General Comptroller, 
in connection with audits of M. O. and all other accounts, when 
any circumstances indicate that there may have been any misuse or 
misappropriation of trust funds or failure to properly account for 
and pay over to the Corporation moneys due and belonging to it 
which might be covered by a bond, should promptly report the 
matter to the General Comptroller who should immediately notify 

the Law Department, without waiting to complete the audit, 

127 so that the Law Department may determine if any notice or 
other action be necessary in order to preserve our rights 

under the bond. 

3. The Collection Department will prepare and keep up in ap¬ 
propriate form a list of all debtors of the Fleet Corporation who have 
furnished a bond or 6ther guarantee of payment of their obligations 
and furnish to the Law Department as soon as possible a duplicate 
of such list, with additions and changes from time to time as the same 
are made by the Collection Department on its list, and promptly ad¬ 
vise the Law Department of any actual or anticipated failure of such 
a debtor to pay its obligations in full as and when due. No com¬ 
promise settlement shall be made, nor even negotiated with such 
debtors without first 1 submitting the matter to the Law Department 
and obtaining its advice and co-operation, so that no act be done 
which may affect the liability of the surety or guarantor. The Col¬ 
lection Department 6hall take no action to collect from a surety or 
guarantor except in conjunction with the Law Department. 

4. Each division and department handling a matter from' which a 
liability may arise against a surety or guarantor shall be responsible 
for furnishing the Law Department complete information concern¬ 
ing the matter out of which the default arises. The Law Department 
will be responsible for taking any necessary action to protect the 
rights of the Corporation under the bond, but only in cases where 
it has received sufficient notice and information upon which intelli¬ 
gent action can be taken. 

5. The Treasurer shall continue to be the custodian of all bonds 
and other such instruments and shall accord convenient privileges of 
inspection of such documents to the heads of other departments in¬ 
terested and furnish photostatic copies of such instruments as may 
be requested by the Law Department. 

6. All communications with the Law Department concerning the 

above matters should be directed to the attention of Mr. John 

128 E. Fetzer. 

By Direction of the Board of Trustees. 

* 

Clifford W. Smith, Secretary, 

United States Shipping Board Emergency Fleet Corporation. 

Exhibit 13 

July 25,1922. 

Sigsbee, Humphrey & Company, Inc., 

%3 South William Street , 

New York , N. Y. 

Gentlemen : Referring to your letter of October 28, 1921: 

The vessels which are to be considered to have been operated and 
for which accounting should be made under the provisions of the 


U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 95 

M. O. 3 agreement are those vessels which sailed subsequent to March 
1st, 1920, and which completed their round voyage (TJ. S. tio foreign 
port and return) on or before February 10, 1921. The date upon 
which any vessel may have been assigned to you for management and 
operation, whether before or after March 1st. is immateijial. The 
M. O. 3 agreement applies to such vessel up to the time of completion 
of its last voyage at U. S. port on or before February 10^ 1921. 

The agent’s fee of $200 per ship per month as provided in the 
M. O. 3 agreement is applicable to vessels for the time which they 
were in your control or possession between March 1st, 1920, and the 
time of their return, prior to February 10, 1921, to U. S. Port after 
voyage to foreign port, provided such vessel sailed on voyage to 
foreign port subsequent to March 1st. 1920. The minimum cjompensa- 
tion is to be computed for the period that any ship is actually in op¬ 
eration or commission as specified in sub-paragraph B of paragraph 
11 of the M. O. 3 agreement. These periods can be determined by 
the records of each respective vessel. 

I do not deem it of sufficient importance one way or it he other 
to commit myself at this time on your suggestion with respect 
129 to the method of calculating half days, hours and niinutes on 
the basis of either 366 davs or 365 davs of the vear 1920. 

Referring to your letter of November 10, 1921: 

It seems to me that there should be no serious dispute concerning 
the rule which you set forth to be followed in calculating liet profits 
which has been so often repeated by you in previous letters and 
memoranda to the effect that you cannot be held responsible for time 
lost or costs incurred during periods when any vessel was pot avail¬ 
able to you for operation and earnings because of control exercised 
by the Shipping Board which deprived you of the use of the vessel. 
In view of the difference of opinion existing between us, however, 
concerning the application of such a rule to the facts as they exist 
it is apparent that further discussion of it is useless. The fact that 
some of the vessels were delayed on their voyage to await fuel oil 
does not constitute control exercised by the Shipping Board which 
either made such vessel unavailable to you for operation or which 
deprived you of the use of the vessel sufficiently to exclude ithe vessel 
for such period from the operation of the agreement. To bring 
any vessel or period within the rule for which you have peen con¬ 
tending it must be shown that such vessel was actually taken from 
your control and that it was not available to you for operation. 
Delays occasioned in waiting for fuel oil were contingencies of the 
business for which you must be held to bear your proportionate 
share under the provisions of the agreement. It is expressly stip¬ 
ulated in the agreement that you should be subject to the | orders of 
the Corporation as to all matters affecting the use of the vessel when 
the corporation deems the exercise of such power to be in the public 
interest; and you have expressly agreed to procure fuel in accord¬ 
ance with the directions of the Corporation m every case where the 
Corporation had contracted for fuel. There are no exceptions or 
conditions restricting the application of this arrangement and 
130 you must be held to abide by it. The delays encoiintered in 
procuring fuel oil were due, as you well know, to causes be¬ 
yond the control of either party. Your contention that fhese con- 




96 U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 


ditions amount to such interference, neglect, or exercise of control 
of the vessels on the part of the Board as to deprive you of the 
use or possession of the vessel so as to either terminate or suspend 
the application of the managing and operating agreement is entirely 
without merit or justification. In view of your repeated statements 
that you are not interested in the reasons why fuel oil was not sup¬ 
plied at the time you claim it should have been supplied in each 
case it seems useless to go into further discussion of this matter. 

Referring to your recommendation concerning the audit of your 
accounts prior to the execution of the M. O. 4 agreement it was 
understood by all parties concerned that this audit was merely to 
determine approximately what difference it would make if the excep¬ 
tion written in paragraph 17 of the M. O. 4 agreement should be 
accepted or rejected. It was not an accounting. The Board did 
not consider this matter for any purpose except as a feature involved 
in their decision to accept or reject the proposed exception written 
in paragraph 17 of the M. O. 4 agreement. It neither adopted this 
audit as the amount due nor did it approve, either expressly or by 
implication, the method followed in making the audit and compu¬ 
tation. 

I regret that we have been unable to effect a final settlement of this 
account. I feel that I have done my utmost to make our position 
clear to you on each of the several issues involved. I have been 
willing to concede some things for the sake of a compromise, but 
in view of your determined attitude to have every contention of 
yours, both as to facts and law, determined in your favor, without 
any indication whatever of any willingness to concede even trifling 
details, there seems to remain but the usual course of resorting to 
legal procedure to enforce payment of the balance due from 
131 you to the Government, and I shall be obliged, therefore, to 
submit the matter to the Department of Justice for appro¬ 
priate action. 

Very truly yours, 

John E. Fetzer, 

i ' Assistant Cov/rtsel , 

United States Shipping Board Emergency Fleet Corporation, 


Exhibit 14 

^ _. _ . ^ „ August 18, 1922. 

From: Disbursing Office—Frank A. Matson. 

To: Sigsbee, Humphrey & Co., 23 South William St., New York City. 
Subject: Compensation Deductions from United States Shipping 
Board Trust Fund. 11 & 

: I am advised by the General Office at Washington 
that prior to the closing out of U. S. Shipping Board Trust Funds 
deduction were made by your Company out of Trust Fund Account 
under vour control of commissions earned by you account of opera¬ 
tion of U. S. Shipping Board vessels in the sum of $81,682.59. The 
General Office have in consequence requested that this office make, 
collection of the above amount as such deductions were made in 
violation of U. S. Shipping Board accounting practice. Kindly 
give the foregoing matter your attention and forward check to this 



U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 97 


office at the earliest opportunity, and by so doing you will greatly 
oblige. 

Very truly yours, 

Geo. A. McCain, 
Disbursing] Officer. 
By F. A. Matson, i 

Auditor of Receipts. 

Exhibit 15 


Sigsbee, Humphrey & Company, 

23 South William Street , New York , N. Y. 


September 29, 1922. 


Dear Sir: Receipt is acknowledged of your letters of September 
13th and September 26th. 

132 Your entire account under the M. O. 3 Agreement is being 
reviewed and adjusted in accordance with the terms of the 

contract so far as we have been able to agree and computations will 
be made on the several questions in dispute to show in dpllars and 
cents the difference involved. 

It does not seem necessary at this time to call Admiral penson or 
Judge Goff into conference. 

You will be given another opportunity to settle the account before 
suit is actually commenced. 

Very truly yours, 

John E. Fetter, 
Assistant Counsel . 

Exhibit 16 

October lltjh, 1922. 

R. W. Bolling, Esq., Treasurer, 

U. S. Shipping Board , TF ashing ton, D . C. 

Sir: Under date of May 19th, 1921, our Company, as surety, was 
requested by you to cancel a bond in the sum of $5001000 dated 
January 27th, 1920, on which we are surety with the Sigsbee 
Humphrey & Company as principal, as of May 14th, 1921. In this 
connection, you will please be advised that our company is holding 
collateral security under the bond in question, and as the principal 
is desirous of the release of said collateral, which it is oiir wish to 
do, it is necessary for us to ascertain what, if any, liability may 
develop during the period our bond was in force, namely: between. 
January 27th, 1920, and May 14th, 1921. 

In taking this matter up with your office day before yesterday, it 
was stated that a final audit of the accounts of Sigsbee Humphrey 
& Company was now being made and would likely be concluded 
during the present week. We would thank you to advise us at your 
early convenience as to whether there will be any claim under 

133 our bond, because if there is no claim we wish to return the 
collateral which we now hold to the principal without un¬ 
necessary delay. 

Respectfully, 

J. T. Jones, 

Manager, 

Suite 826 Woodward Bldg., Washington, D. C. 


1 





98 U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 

Exhibit IT 

October 24,1922. 

Mr. J. T. Jones, Manager. 

Aetna Casualty and Surety Company, 

Stnte S26 Woodward Building, Washington, D. C. 

subject: bond—sigsbee Humphrey & company 

Dear Sir : Yours of the lltli instant, addressed to R. W. Bolling, 
relative the above subject, received today. Please be advised that 
we are taking up with our Auditing Department the matter of 
having this Operators accounts audited, and will advise you further 
in the near future. 

Respectfully, 

T. L. Clear, Tr easier er. 


Exhibit 18 

u. s. shipping board emergency fleet corporation, general 

comptroller’s dept. 


October 26, 1922. 

Fi •om: D. S. Morrison, 

To: J. E. Fetzer. 

Subject: Compensation due Sigsbee. Humphrey & Co., under M. O. 
3 Agreement. 

In accordance with your request, Mr. Steinmetz and I have pre¬ 
pared a statement of the compensation due Sigsbee, Humphrey & 
Co., under the MO-3 Agreement. In calculating this compensa¬ 
tion, I have followed the memorandum you prepared as the result 
of our conference on September 28th, 1922, and the compensation 
has been calculated on the various different bases suggested in that 
memorandum. 

The three primary calculations are based on the three different 
sets of effective dates of the MO-3 Agreement, suggested in the 
134 memorandum referred to. These are briefly as follows: 

Computation No. 1 

In this computation, the MO-3 Agreement is deemed to be effective 
on each vessel from the date of delivery to Sigsbee, Humphrey & Co., 
or from the date on which the first voyage under the MO-3 Agree¬ 
ment commenced, to the date on which the last voyage under the 
MO-3 Agreement was terminated. These dates are as follows: 


S. S. Cabegon__ _ _4-27-20-12- 1-20. 

Conshohocken- 3-22-20- 5-28-20. 

Eastern Dawn___ 6-30-20- 9-16-20. 

Jadden__ 5-25-20- 8- 1-20. 

Salaam_-_ 7-29-20-11-23-20. 

West Lashaway_2-11-20- 9-29-20. 

West Segovia- 8- 6-20-12- 3-20. 

West Zeda_4-25-20- 9-17-20. 











U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 99 


Computation No. 2 


In this computation, the MO-3 Agreement is assumed to be ef¬ 
fective on each vessel from the date of delivery or commencement 
of the first voyage under the MO-3 Agreement to the conipletion of 
the repair period immediately following the last voyage under the 


MO-3 Agreement. These dates are as follows: 


S. S. Cabegon- 

Conshohocken-. 
Eastern Dawn_. 

Jadden- 

Salaam_ 

West Lashaway 
West Segovia— 
West Zeda_ 


. 4-27-20-12-21-20. 
. 3-22-20- 5-28-20. 
.. 6-30-20-10- 8-20. 
. 5-25-20- 8-27-20. 
. 7-29-20-12-! 6-20. 
. 2-11-20-10-29-20. 
.. S- 6-20-12-10-20. 
- 4-25-20-11-10-20. 


135 


Computation No. 3 


In the third computation, the MO-3 Agreement is assumed to be 
effective on each vessel from the date of delivery or commencement 
of the first voyage under the MO-3 Agreement to the same dates as 
specified above under computation no. 2 with the exception of those 
vessels which were redelivered to the Board without undertaking 
voyages under the MO-4 Agreement. In the case of these ships, the 
MO-3 Agreement has been considered to be in effect until redelivery 
date. These dates are as follows: 


S. S. Cabegon__ 4-27-20- 1*4 $-21. 

Conshohocken- 3-22-20- 5-2S-20. 

Eastern Dawn_,_ 6-30-20-11- 8-20. 

Jadden- 5-25-20-10421-20. 

Salaam_,_ 7-29-20-12- 6-20. 

West Lashaway_ 2-11-20-11-17-20. 

West Segovia_ 8- 6-20-12-10-20. 


West Zeda_ 4-25-20-11-10-20. 

Under each of the above computations, the compensation due the 
Sigsbee, Humphrey & Co., has been calculated both including and 
eliminating voyage no. 2 of the S. S. 44 West Lashaway.” .These cal¬ 
culations have also been made both including and excluding the 
expenses and the fixed charges applicable to the periods during which 
these vessels were waiting for fuel oil. In addition to 'these com¬ 
putations, we have also made a separate calculation under each of 
the different headings of the compensation due the operator should 
he participate in the net profits of each vessel separately, as well as 
the compensation that would be due him should the net profits of all 
vessels be grouped together before calculating the operators com¬ 
mission. A summary of these twenty-four calculations is furnished 
you on the attached statement. 

136 In regard to the Voyage No. 2 of the S. S. “West l^ashaway”, 
I am more convinced than ever of the impropriety of consid¬ 
ering this voyage as coming under the MO-3 Agreement. In accord¬ 
ance with paragraph IT of the MO-4 agreement as executed by Sigs¬ 
bee, Humphrey & Co., the MO-4 Agreement “is made retroactive to 
March 1,1920, except as to vessels that sailed subsequent tJo March 1, 
1920, and which completed their round voyage prior to the signing of 
this agreement.” From this it is clear that voyage No. 2 bf the S. S. 


I 

j 


i 

1 

1 
















100 u * s - SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 


“West Lashawav” does not come under the MO-4 agreement, and that 
it must therefore be accounted for under the terms of the agreement 
in effect on that vessel during the period of this voyage. 

In my opinion, it is very clear that the 0-2 and M-2 Agreements 
were in effect on this vessel during the period of this voyage. This 
is evidenced bv the fact that delivery certificates were executed with 
Sigsbee. Humphrey & Company accepting the vessel under these 
agreements and redelivery cerificates were also executed redelivering 
the vessel to the Shipping Board under those agreements on May 21, 
1920. It is also significant that a delivery certificate was executed as 
of the same date accepting the vessel under the MO-3 Agreement. 

In addition to these documents, there is considerable correspondence 
which demonstrates beyond a doubt that both parties to the agree¬ 
ment considered this vessel to be operated under the 0-2 and M-2 
Agreements, rather than under the MO-3 Agreement. To deliver the 
vessel to Sigsbee, Humphrey & Company under the MO-3 Agreement 
would have been directly contrary to the policy followed by the 
Board in every other case and of which the operators were notified 
at the time of the issuance of the MO-3 contract. Under this 
13T policy, vessels were delivered under the MO-3 Agreement only 
after they had been conditioned after the completion of the 
commitments upon which they were engaged on March 1st, 1920. 
Any other procedure would be impossible under a profit sharing 
agreement. 

In addition to these factors, I also wish to call your attention to 
the fact that Sigsbee. Humphrey & Company in November, 1920, 
accounted to the Board for this voyage under the 0-2 and M-2 Agree¬ 
ments and not under the MO-3 Agreement. In the accounting 
rendered at that time, Sigsbee. Humphrey & Company charged the 
Board and paid themselves out of our trust funds the compensation 
due them under the 0-2 and M-2 Agreements, and we now hold 
their receipt for this operating compensation which they withdrew 
from our funds. This accounting was audited by our New York 
office and entered in our books in December, 1920, and to date has not 
been withdrawn by Sigsbee, Humphrey & Company. 

I might mention incidentally that Mr. Gendron is also very 
strongly of the opinion that this vessel should be considered under 
the 0-2 and M-2 agreements for the periods of this voyage. 

In regard to demurrage charges set up against the Republic of 
Poland by Sigsbee, Humphrey & Co., I wish to say that we have 
included these items in our calculations to the extent that they were 
collected from the Republic of Poland in our recent settlement with 
them. The total demurrage as shown by Sigsbee, Humphrey & 
Company’s records amounts to $241,041.66. This amount was set¬ 
tled for $174,933.48. This settlement was effected by the Contract 
Department and is, I believe, a most advantageous one. I cannot 
appreciate how Mr. Sigsbee could equitably contend for the inclusion 
of demurrage charges which we were unable to collect. 

In addition to the demurrage charges against the Republic 
138 of Poland, we have a claim against the New River Colleries 
for demurrage on the S. S. “West Lashaway” Voyage No. 3 




U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 1Q1 


for $19,478.40. This item is in dispute and we have eliminated it 
from our calculations as we have considered it uncollectible. 

In our computations, minimum compensation has beep included 
during the lay-up periods waiting for fuel oil and during the lay-up 
periods immediately preceding the redelivery dates under! the MO-4 
Agreement. There is some question in my mind as to whether the 
vessels could be considered as in actual operation during these 
periods, and therefore some doubt as to whether this procedure is 
correct. 

It must also be borne in mind that Sigsbee, Humphrey & Company 
have received on account of the compensation due them under the 
MO-3 Agreement approximately $301,000. This is made up of the 
payment on account of $250,000 and approximately $51,0(to in addi¬ 
tion, which was withdrawn from the trust fund by that Company. 
Mr. Steinmetz is also making an audit of all their account^ under the 
M-2 and MCMt Agreements, which will determine the amount due 
the Board or due Sigsbee, Humphrey & Company on all our transac¬ 
tions with them, exclusive of the operations under ihe MO-3 
Agreement. 

In conclusion I wish to say that the calculations submitted here¬ 
with are practically entirely the results of Mr. Steinmetz’s efforts and 
I think he deserves considerable commendation for the wbrk he has 
done in connection with these accounts. 

D. S. Morrison, 

Assistant to director of finance. 

139 Exhibit 18-A .—Sigsbee Humphrey & Company—Statement of compensa¬ 
tion earned under M. O. 3 agreement calculated in accordance with 
various interpretations of that agreement outlined in ilfr. Fetzer's 
memorandum of September 28, 1922 




Fixed 

monthly 

fee 

Mini- 

Participation of 
profits 

i 

Total compensation 

mum 

compen¬ 

sation 

Each 

vessel 

sepa¬ 

rately 

Grouping 
all ves¬ 
sels to¬ 
gether 

Each 

vessel 

sepa¬ 

rately 

1 

1 

Grouping 
all ves¬ 
sels to¬ 
gether 


1. Considering M. O. 3 Agreement termi¬ 
nated at end of Voyage (First dates in 
Mr. Fetzer’s memo 9/28/22): 

(a) Including Voyage 2 of S/S West 

Lashaway, also Expenses & 

Fixed Charges applicable to ! 

Fuel Oil Lay-up periods.$6.880.65 22.982.53 205,861.46 204,888. 24 235,724.64 234,75L 42 

(b) Excluding Voyage 2 of S/S West 

Lashaway, but including Ex¬ 
penses <fc Fixed Charges appli¬ 
cable to Fuel Oil Lay-up periods. 6.416.22 21,389.15 165,573.93 164.600.71 193,379.30 192,406.08 

(c) Including Voyage 2 of S/S West 

Lashaway, but not including 
Expenses and Fixed Charges 
applicable to Fuel Oil Lay-up 

periods. 6,88a 65 22,982.53 271,307.67 271,277.66 301,17a 85 301. 14a 84 

(d) Excluding Voyage 2 of S/S West 

Lashaway and Expenses and 
Fixed Charges applicable to 

Fuel Oil Lay-up periods. 6,416.22 21,389.15 228,962.33 228,932.32 256,767.70 256,737.09 












102 U - s * SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 

I 

Exhibit 1S-A .—Sigsbee Humphrey dc Company—Statement of compensation 
earned under M . O. 3 agreement calculated in accordance icith various inter ¬ 
pretations of that agreement outlined in Mr . Fetzer's memorandum of 
September 2S . li>22 —Continued 



Fixed 

monthly 

fee 

Mini- 

Participation of 
profits 

Total compensation 


mum 

compen¬ 

sation 

Each 

vessel 

sepa¬ 

rately 

Grouping 
all ves¬ 
sels to¬ 
gether 

Each 

vessel 

sepa¬ 

rately 

Grouping 
all ves¬ 
sels to¬ 
gether 

2. Considering M. 0. 3 Agreement termi¬ 
nated upon completion of Repairs im¬ 
mediately following Voyage (Second 
dates in Air. Fetzer's memo 9,(28/22): 

(a) Including Voyage 2 of s/S West 
Lashaway, also Expenses and 
Fixed Charges applicable to 
Fuel Oil Lay-up periods. 

S, 126.14 

22.982.53 

1 

149,572.26 

140,170.40 

180.6S0.93 

171,279.07 

(b) Excluding Voyage 2 of S/S West 
Lashaway. but including Ex¬ 
penses and Fixed Charges ap¬ 
plicable to Fuel Oil Lay-up 
periods. 

7.661. 71 

21,3S9.15 

112,134.64 

104, 790. 79 

141,185.50 

133,841.65 

(c) Including Voyage 2 of S/S West 
Lashaway. but not including 
Expenses and Fixed Charges 
applicable to Fuel Oil Lay-up 
periods. 

8.126.14 

22,9S2.53 

206,467.28 

, 

206,459. 22 

237,575.95 

237,567.89 

(d) Excluding Voyage 2 of S/S West 
Lashaway, and Expenses and 
Fixed Charges applicable to 
Fuel Oil Lay-up periods. 

7,661.71 

21,389.15 

169,029. 86 

169,021.80 

198,080. 72 

198,072.66 

3. Considering M. 0. 3 Agreement termi¬ 
nated on date of redelivery certificates 
(Third dates in Mr. Fetzer’s memo of 
9/28/22): 

(a) Including Voyage 2 of S/S West 
Lashaway, also Expenses and 
Fixed charges applicable to 
Fuel Oil Lay-up periods. 

8,805.31 

25,792.64 

125,278.85 

94,408.15 

159,876. SO 

129,006.10 

(b) Excluding Voyage 2 of S/S West 
Lashaway, but including Ex¬ 
penses and Fixed Charges ap¬ 
plicable to Fuel Oil Lay-up 
periods. 

7,661. 71 

21,389.15 

93,388.52 

56,970.73 

122,439.38 

86,021.59 

(c) Including Voyage 2 of S/S West 
Lashaway, but not including 
Expenses and Fixed Charges 
applicable to Fuel Oil Lay-up 
periods. 

8,805.31 

25,792. 64 

i 

175,540.38 

160,696.97 

210,138.33 

195,294.92 

(d) Excluding Voyage 2 of S/S West 
Lashaway, and Expenses and 
Fixed Charges applicable to 
Fuel Oil Lay-up periods. 

7,661.71 

21,389.15 

138,102.96 

123,259. 55 

167,153.82 

152,310.41 


140 Exhibit 19 

November 13, 1922. 

R. R. Sigsbee, Esq., 

% Sigsbee , Humphrey & Company , 

New York City. 

Dear Sir. Replying to your letter of November 12,1922, which has 
just been delivered to me by your messenger, please be advised that 
to the best of my recollection I made no statement in our conversa¬ 
tion over the telephone on Friday to the effect that I would send you 
a statement of your account. No formal final statement of your 














U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 103 


account has been prepared. I have a statement of account which has 
been prepared for the purpose of commencing suit against you for 
the recovery of moneys which you owe the United Statesj Shipping 
Board Emergency Fleet Corporation under the M. O. 3 Agreement. 

We are well aware of the fact that settlement of this account has 
been delayed for a long time, and had it been possible to reach any 
understanding with you concerning the interpretation of various 
clauses in the M. O. 3 agreement, and had you been able and willing 
to pay the amount due thereunder, this case should have been closed 
long ago. The statement which I have shows that you owe the Board 
$240,000. This figure is computed on the basis of including; voyage 
No. 2 of the West Lashaway and not excluding for allowance any 
of the time awaiting fuel oil. Under the most favorable construc¬ 
tion to be placed upon this contact, according to all of! your own 
contentions, the account will show you indebted to the Board for 
around $100,000. 

If you sincerely desire to actually effect a settlement 6f tins ac¬ 
count, the Shipping Board shall be very glad to resume negotiations 
with you for this purpose. 

Yours very truly, 

John E. FeIzer, 
Assistant Counsel . 


141 Exhibit 19-A 

November 8 , 1922. 

As requested by Mr. D. S. Morrison, Assistant to Financial Vice 
President, and Mr. J. E. Fetzer, Legal Division, while the writer 
was in Washington, there is submitted herewith statement pf amounts 
withdrawn by Sigsbee, Humphrey & Company from Trust Fund on 
account of Management Fees and Commissions earned under MO-3 
Agreement, also amounts which have been refunded to the Trust 
Fund upon receiving an advancement of $250,000.00 from the Board. 
A net balance of $73,997.79 remains yet to be refunded,!as per the 
attached schedule. 

There is also attached hereto, statement of disallowances, totaling 
$3,834.78, on vessels under M-02- M-04 Agreements, witjh explana¬ 
tion setting forth why these items were disallowed. 

As the matter now stands, this Agent has received or ;is liable to 
the Board the $250,000.00 cash advancement, $73,997.79 withdrawn 
from the Trust Fund, plus liability of $3,834.78 for disallowances 
under M-02 and M-04 Agreements, making a total liability of 
$327,832.57, for which the Agent has a claim for Fees and Com¬ 
missions under MO-3 Agreement, the amount of which is 
undetermined. 

E. M. Stein j|ietz, 

Field Auditor. 



104 U * S - SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 


Exhibit 19-A. —Statement of amounts withdrawn from U. S. S. B. trust 
funds by Siysbee Humphrey d Co. for commission d fees under M. O. $ 
agreement 



Dates 

with¬ 

drawn 


Refunded to 
trust fund Balance 
due 

U.S.S.B. 


SS. Cabegon, voy. 1. 

Do. 

Do. 

Do. 

Do. 

Do. 

Do. 

Do. 

Do. 

Do. 


SS. Conshchcken, voy. 1... 

Do. 

Do. 

Do. 

Do. 

Do. 


SS. Eastern Dawn, voy. 1.. 

Do. 

Do. 

Do. 

Do. 


SS. Jadden, voy. 2. 
D 
D 
D 
D 
D 
D 


SS. Salaam. 

Do. 

Do .... 
Do. 


Total forward. 

83.West Lashaway, voy. 2. 

Do. 

Do. 

Do. 


SS. West Lashaway, voy. 3. 

Do. 

Do. 

Do. 

Do. 

Do. 


SS. West Segovia, voy. 1_— 

Do. 

Do. 



8/5/20 

8/24/20 

9/2/20 

10/2/20 

10 / 2/20 


6/3/20 
6/30/20 
8/5/20 
8/5/20 
8/11/20 

9/2/20 10841 3 
10/2/20 2024 


9/2/20 1084 

10/2/20 2024 

12/27/20 2414 

12/19/21 3328 AI 719.32 


$2,555.61 22,500.00 


25,055.61 


24,336.29 719.32 


987.98 


3/9/21 9,505.81 
3/9/21 1,080.78 

















































































































































U. S. SHIPPING BOARD YS. AETNA CASUALTY AND SURETY CO. 1Q5 

Exhibit 19-A. —Statement of amounts withdraicn from U. S. S. B. trust funds 
by Sigsbee Humphrey & Co. for commission & fees under M. O. 3 Agreement — 
Continued ! 


Manage- Commis- 
ment sions on 
agency new 

fees profits 


Total 

amounts 

with¬ 

drawn 


Refunded to 
trust fund 


Dates Amounts! 


Balance 

due 

IU.S.S.B. 



SS. Cabegon, voy. 1... $46,354.74 

SS. Conshohoken, voy. 1—... 16,700.58 

SS. Eastern Dawn, voy. 1.... 20,403.32 

SS. Jadden, voy. 2. 15,738.69 

SS. Salaam, voy. 2... 25,055.61 

SS. West Lashaway, voy. 2.. 10,705.81 

SS. West Lashaway, voy. 3... 11,354.49 

SS. West Segovia, voy. 1. 25,654.84 

SS. West Zeda, voy. 2.... 41,867.91 


Total 

amounts 

withdrawn 

- 1 - 

Total 
refunds to 
trust fund 

$46,354.74 
16,700.58 
20, 403.32 
15,738.69 
25,055. 61 
10,705.81 
11,354.49 
25,654.84 
41,867.91 

$46,354.74 
16.431J92 
20,403:32 
15,738.169 
24,336.29 
10.586J59 

5,986. 65 


213,835.99 

139,838^20 

1 


Balance 
to be 
refunded 


$268.66 


719.32 

119.22 

5,367.84 

25,654.84 

41,867.91 


73,997.79 


Exhibit 19-B. —Statement of disallowances under M-02 — M-0't agree¬ 
ments, which are to be refunded to trust fund 


SS. Oronoke. 
SS. Ozaukee. 


Do.... 

Do_ 

SS. Radnor 
D 
D 
D 
D 

SS. Salaam. 



SS. West Bridge— 
SS. West Harcuvar. 

Do. 

Do. 


SS. West Lashaway. 

SS. West Segovia— 

Do.. 

SS. West Lashaway. 


Voy. #1. 

115.14 

l. 

105.00 

1. 

50.00 

l. 

650.00 

l. 

100.00 

1. 

100.00 

l. 

25.00 

2. 

25.00 

2. 

66.04 

2. 

100.00 

2. 

1,025.00 

2. 

170.00 

3. 

100.00 

3. 

75.00 

1. 

100.00 

1. 

125.00 

2. 

100.00 

2. 

37.94 

1. 

225.00 

2. 

100.00 

3. 

390.66 

1. 

50.00 

$3,834.78 


Agency Fees at Foreign Port (Danzig), M-04 Agree¬ 
ment. 

Attendance Fee at loading Port, Mj-04, Agreement. 
Error in calculating repair ComjJensation, M-04 
Agreement. 

Do. 

Attendance Fee at Loading Port, M-04 Agreement. 
Do. 

In excess of 50.00 Fee in U. S. Port, M-04 Agreement. 
Do. 

Do. 

Attendance Fee at loading Port, M-04 Agreement. 
Ballast & Repair Compensation to be paid direct by 
U. S. S. B., M-04 Agreement. 

Do. 

Overcharge on Ballast Voyage, M-04 Agreement. 
Agency Attendance Fee at Loading Port, M-04 
Agreement. 

Do. 

Do. 

Do. 

In excess of the 50.00 Fee provided for at Halifax. 
M-0 4 Agreement. 

Commission on Salvage not proper under, M-04 
Agreement. 

Attendance Fee at Loading Port, M-04 Agreement. 
Agency Fees at Loading Port, M-04 Agreement. 
Attendance Fee at Loading Port, M-02 Agreement. 



























































































106 u * S - SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 


146 


Exhibit 19*4 


November 25, 1922. 

SlGSBEE. HUMPHREY & Co., INC., 

23 South William Street , 

New York City , New York. 

Gentlemen: I have made inquiries concerning the matter re¬ 
ferred to in your letter of November 18th. I find that your account 
has been considered by several of our departments and is now before 
the Law Division, with a recommendation that suit be instituted. 

General Counsel Sanford H. E. Freund has the reconunenda- 
147 tion under advisement and will doubtless come to a conclu¬ 
sion in the very near future. Your request for a conference 
has been communicated to him. 

Very trulv yours, 

A. D. Lasker, Chairman. 


Exhibit 20 


December 13, 1922. 

Sigsbee, Humphrey & Company, Inc., 

23 South William Street , 

New York City. 

Dear Sirs : As you have been advised by the Chairman, the matter 
of settlement of your account under MO-3 agreement has been re¬ 
ferred to me. I have examined the reports of our auditors and 
Assistant Counsel carefully, and concur in the conclusion that this 
account seems to indicate that you are indebted in the sum of 
$291,172.66. This figure is mentioned without prejudice to any 
amount that might develop upon a judicial accounting should it 
become necessary to resort to litigation. 

You have asked in your letter to the Chairman that a conference 
be arranged. A conference will be fruitless unless you have some 
proposition to submit for payment of your indebtedness. 


Very truly yours, 


Sanford H. E. Freund, 

General Counsel. 


Exhibit 21 


April 3, 1928. 

Aetna Casualty & Surety Company, 

Woodward Building , Washington. I). C. 

Subject: Bond of Sigsbee. Humphev & Company dated January 27, 
1920—$500,000.00. 

Dear Sirs: Reference is made to your letter of October 11 , 
148 1922, advising that your company is holding collateral security 

under the above bond pending information as to whether the 
United States had any claim against Sigsbee Humphrey & Company 
under the terms of said bond, and further reference is made to our 
letter of October 24, 1922, advising that our auditing department 
was engaged in auditing the accounts of Sigsbee Humphrey & 
Company. 


U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 107 

I beg to advise you that the audit of the accounts! of Sigsbee 
Humphrey & Company has been completed, and that there is a bal¬ 
ance due from the said company to the United States in: the amount 
of $175,303.76, for which amount claim is made against your com¬ 
pany as surety on the said bond of Sigsbee Humphrey & Company. 

We will be glad to permit a representative of your company to 
examine the details of this account at any convenient time. 

Yours very truly, 

Chauncey G. Parker, 

Generdl Counsel. 

Exhibit 22 

September 27, 1928. 

Aetna Casualty & Surety Company, 

Woodward Building , Washington , D. C. 

Gentlemen : Under date of April 3, 1928 there was forwarded to 
you a statement of account showing a balance due in favor of the 
United States in the sum of $175,303.76 for which claiin was made 
against your company as surety on a bond dated January 27, 1920, 
for $500,000. 

Having heard nothing further from you in this regard, I am 
again writing to inquire what steps have been taken bjr your com¬ 
pany toward settlement of this account. 

Your reply will be very much appreciated. 

Very truly yours, 

Chauncey G. Parker, 

General Counsel. 

149 Exhibit 23 j 

October 3, 1928. 

Chauncey G. Parker, General Counsel , 

Fleet Corporation , New Navy Building , 

Washington, D. C. 

Re: Sigsbee, Humphrey & Co. 

i 

Dear Sir: Your letter of September 27th addressed jto this Com¬ 
pany at its Washington Office has been referred here for reply. 

We desire to sav that ever since our conference with Assistant 
General Counsel Mr. Nutting some time subsequent to your com¬ 
munication of April 3rd, 1928, referred to in your letter, we have 
been waiting on Mr. Stitt, former Comptroller ! of Sigsbee, 
Humphrey & Company, who is more familiar than anyone with the 
accounts of that company, to meet us in Washington, D. C. where 
the books and records of the company are now in the possession of 
the company’s Washington attorneys. Mr. Stitt has for some time 
past been located in Florida and his proposed visit to Washington 
has up to the present, we understand, been unavoidably deferred 
from time to time. However, we are making special effort to arrange 
for a conference at an early date and in the meantime will appreciate 
your further kind indulgence. 

Yours very truly, 

C. K. Mount, Secretary. 




108 U * S * SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 

Exhibit 24 

i December 4th, 1928. 

Aetna Casualty & Surety Company, 

Hartford , Connecticut . 

Subject: Sigsbee Humphrey & Company. 

Dear Sirs: Referring to letter of October 3, 1928, from Mr. 
Mount to this office with relation to the above matter can you 
150 advise me whether you have been able yet to take up the case 
with Mr. Stitt and how soon we may expect to hear from you 
further ? 

Very truly yours, 

Chauncey G. Parker, 

i General Counsel. 

Exhibit 25 

! January 4, 1929. 

Chauncey G. Parker, General Counsel , 

U. S. Fleet Corporation , 

New Navy Building , Washington. D. C. 

Re: Claim F-20904—Sigsbee, Humphrey & Company 

Dear Sir: We appreciate your courtesy in permitting this matter 
to lie in abeyance during my frequent and unavoidable absences from 
my office in the last few months. We have had considerable difficulty 
in getting the information we sought in this case, and that is partly 
the reason for our delay in taking the matter up with you. 

We have never been able to get in touch with Mr. Stitt, and this 
is regrettable because he could doubtless have thrown valuable light 
upon the facts of the case and the true status of accounts between 
Sigsbee, Humphrey & Company and the U. S. Shipping Board. How¬ 
ever, we did take the matter up with Mr. H. S. Sigsbee, former 
president of Sigsbee, Humphrey & Company and he has co-operated 
with us in every way in getting the matter straightened out. 

We have been convinced from the beginning that there was no 
liability on this Company on the bond executed for Sigsbee, Hum¬ 
phrey & Company and running to the U. S. Shipping Board. Never¬ 
theless, in order to avoid the possibility of error, we have recently 
made a very careful investigation of the whole matter. It is needless 
to say that such an investigation was lengthy and tedious, due to the 
complications of the case. We employed a firm of auditors of 
151 wide experience in handling Shipping Board cases, and they 
minutely reviewed the report of March 22, 1928, from the 

A. • 1 1 . 1 /N 1 • • -TT-V 1 


repeated conferences with him in their endeavor to straighten out 
the account. They have now advised us that, in their opinion, Sigsbee, 
Humphrey & Company are not indebted to the Shipping Board in any 
sum whatever in this transaction. On the other hand, they believe 
that a considerable sum will be found due to Sigsbee, Humphrey & 



U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 

Company from the Shipping Board when the accounts are finally 
balanced and the agreements are properly construed. 

Even if these auditors should happen to be in error, iti should be 
borne in mind that the bond executed by this Company is only a strict 
fidelity bond, and there seems to be no charge (nor doed it appear 
that there is any ground for charging) that Sigsbee, Humphrey & 
Company or any of its agents were guilty of fraud, dishonesty, or 
unfair dealing. If we assume for the moment that a balance is due 
from Sigsbee, Humphrey & Company to the Shipping Bo^rd, it has 
become due through the voluntary payment by the Shipping Board 
to Sigsbee, Humphrey & Company of a larger aggregate sum than 
should have been paid. This money was apparently received by 
Sigsbee, Humphrey & Company without any intent on their part to 
mulct the Government and without any knowledge that thd payments 
were excessive. We understand further that each payment was made 
only after the Shipping Board had carefully examined thd statement 
and the facts upon which the payment was based. If our under¬ 
standing in this regard is correct, it seems that any loss Suffered by 
the Shipping Board will have been brought about through its own 
acts and cannot be attributed to any acts of Sigsbee. Humphrey & 
Company. In addition, it appears that the Shipping Board failed to 
give this Company the notice required by the bond, and this operated 
to our prejudice. 

We feel that it would serve no useful purpose to go more deeply 
into the matter at this time. It is sufficient to say that, after 
152 the most careful consideration, this Company is constrained to 
deny liability to the Shipping Board on its bond. This is 
particularly for the reasons stated above, but there are |also other 
reasons almost equally as compelling, and we reserve thfe right to 
present any and all defenses that we may now or hereafter have, in the 
event there should ever be any litigation or further controversy 
arising out of this case. 

Assuring you again of our appreciation for your courtesies in the 
case, 

Yours very truly, 

C. K. Mount, Secretary. 

The plaintiff introduced and the court received the supplementary 
stipulation, in writing, filed herein November 12, 1936, | the same 
being in the words, letters and figures following, to wit: 

“Upon the same terms and conditions as are specified in that 
certain stipulation filed in the office of the Clerk on JunS 16, 1936, 
it is further stipulated that : 

“The paper hereto attached, made part hereof and marked Ex¬ 
hibit A hereto, is a true copy of the by-laws of the United States 
Shipping Board Emergency Fleet Corporation as amended October 
29, 1919; and that in the paper hereto attached, made pirt hereof 
and marked Exhibit B hereto is a true copy of a resolution duly 
adopted by United States Shipping Board at a meeting held June 
27, 1919. 


143081—37-8 







110 u * s - SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 


“Exhibit A 

“by laws of the united states shipping board emergency fleet 

CORPORATION AS AMENDED OCTOBER 21), HMD 

“Article I 

“stockholders 7 meetings 

“Section 1 . All meetings of the stockholders of this company shall 
be held at the principal office or place of business of the company in 
the District of Columbia. 

“Section 2. The annual meeting of the stockholders of this 

153 company shall be held on the 17th day of April of each year. 
A notice of such meeting and of the time and place thereof 

shall be mailed to each stockholder not less than ten days previous 
thereto, in addition to the notice required by law, unless such notice 
shall be waived in writing by the holders of all the capital stock. 

“Section 3. If for any reason the annual meeting of the stock- 
holders shall not be held as hereinbefore provided, such annual meet¬ 
ing shall be called bv the President and Directors as soon as 
conveniently may be. 

“Section 4. Special meetings of the stockholders of this company 
may be called at any time by the President. It shall also be the duty 
of the President to call a special meeting of the stockholders when¬ 
ever requested in writing so to do by holders of a majority of the 
capital stock; and if the President on such requests fails to call a 
special meeting, the stockholders making the request may call such 
a meeting. Notice of special meetings shall be given by mailing a 
notice thereof to each stockholder, to his post-office address appear¬ 
ing upon the records of the company at least 10 days before such 
meeting, in addition to the notice required by law. Such notice shall 
state the time and place at which the meeting shall be held, and shall 
briefly state the object of said meeting, and no business not so stated 
shall be considered at such meeting except on the unanimous consent 
of all stockholders present, in person or by proxy, at such meeting. 

“Section 5. At all stockholder’s meetings stockholders owning at 
least a majority of the capital stock of the company, and present in 
person, by attorney, or by proxy, shall be necessary to constitute a 
quorum. 

“Section 6 . At all annual meetings of stockholders the right 

154 of any stockholders to vote shall be governed and determined 
by the transfer records. Only such persons shall be entitled 

to vote who appear as stockholders upon the transfer records of the 
company. 

“Section 7. No share of stock shall be voted upon any election 
which has been transferred on the records of the company within 
ten days next preceding such election. 

“Section 8 . Stockholders may give proxies to vote at any election. 

“Section 9. At all meetings of stockholders all questions shall be 
decided by stock vote. All voting may be viva voce, except that 
elections of trustees shall be by ballot. Provided, that any member 
present may demand a vote by ballot. 



U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. m 

‘'Section 10. All meetings shall be presided over by the President, 
who may vote on all questions. In the absence of the President, the 
Vice-President shall preside, and shall have the powers l|ierein con¬ 
ferred on the President. 

“Section 11. At all meetings for the election of Trustees, two in- 
spectors of election shall be first elected by a majority stock vote of 
all the stockholders present in person or by proxy, but no person who 
is a candidate for office of Director shall be elected an inspector; Pro¬ 
vided, that the provisions of this section may be waived by 
unanimous consent. 

‘‘Section 12. At all meetings of stockholders the following order 
of business shall be observed, so far as is consistent with the purpose 
of the meeting. 

“Reading minutes of preceding meeting and action thereon. 

“Report of President. j 

“Report of Treasurer. 

“Report of Secretary. 

“Report of General Comptroller. 

“Report of Committees. 

155 “Election of Trustees. 

“Unfinished business. 

“New business. 

“Article II 

i 

“the trustees 

I 

i 

“Section 1 . The affairs of this Corporation shall be njianaged by 
seven Trustees to be chosen annually, except that for thb first year 
or until their successors are elected the Trustees shall be ^he persons 
named for that purpose in the Certificate of Incorporation. The 
Trustees shall at all times be stockholders of the Corporation, and a 
majority thereof shall be citizens of the District of Columbia. 

“Section 2. Elections shall be at the annual meeting or the stock¬ 
holders, to be held at the principal offices of the Corporation in the 
District of Columbia, as provided in Article I. Public nbtice of the 
time and place of holding such election shall be published not less 
than 30 days previous thereto in some newspaper printed and pub¬ 
lished in the District, as provided by law. unless such notice shall be 
waived in writing by the holders of all the capital stock. 4.11 the elec¬ 
tions shall be by ballot, and each stockholder shall be entitled to as 
many votes as he owns shares of stock in the company, apd the per¬ 
sons receiving the greatest number of votes shall be Trustees. 

“Section 3. In case of any vacancy among the Trustees, through 
death, resignation, disqualification, or otherwise, the remaining 
Trustees, by affirmative vote of a majority thereof, shall select a suc¬ 
cessor to hold office until the next annual meeting of the stockholders. 

“Section 4. Any Trustee may resign his office at anyj time, such 
resignation to be made in writing, and it shall take effect from the 
time of its delivery to the President. 

156 “Section 5. Regular meetings of the Trustees sliall be held 
on Wednesday of each week. Special meetings shall be held 

whenever called by direction of the President. The Secretary shall 
give notice of each special meeting by personal notification or by 






112 U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 


mailing the same at least two days before the meeting or telegraphing 
the same at least one day before the meeting to each Trustee; but, 
such notice may be waived by any Trustee. Special meetings may be 
held at such times and places as the Trustees may from time to time 
determine. 

“other officers 

“Section 6 . The Trustees, immediately following the final adjourn¬ 
ment of the annual meeting of the stockholders, shall hold a meeting 
at which they shall from among their number designate a President, 
and they shall at the same or any subsequent meeting elect or appoint 
one or more Vice-Presidents, a Secretary, Treasurer, and such other 
officers as they mav deem necessary who shall hold office until others 
are chosen and qualified in their stead. The Trustees shall have power 
at any time to fill a vacancy, however, occurring in any office, and 
all officers shall be at all times subject to removal by the Trustees. 

“executive committee 

“Section 7. The Trustees by affirmative vote of a majority thereof 
may appoint from their number an executive committee of three 
members, and during intervals between meetings it shall have and 
exercise all powers of the Board of Trustees. A quorum of this com¬ 
mittee shall consist of a majority of its members, or of any one mem¬ 
ber together with any other Trustee, and in the absence of two mem¬ 
bers of the committee, any two Trustees may act in their place; but 
no action taken by the committee shall be valid unless the same has 
at least two affirmative votes. The executive committee may 
157 hold its meetings at such times and places, within or without 
the District of Columbia, as the committee may from time to 
time determine. All vacancies on the committee shall be filled by the 
Trustees at a regular or special meeting thereof. 

“Article III 
“powers of officers 

“Section 1 . The officers of the Corporation shall be a President, 
one or more Vice Presidents, a Treasurer, a Secretary, a Director 
General, and such other officers as the Trustees shall determine. The 

E owers and duties of the Secretary and Treasurer may be exercised 
y the same person. 

“Section 2 . The President shall preside at all meetings of the stock¬ 
holders and of the Trustees, and he shall, together with the Secretary, 
sign all contracts and other instruments on behalf of the Corpora¬ 
tion. He shall have general oversight and management of the busi¬ 
ness and affairs of the Corporation, and shall have power to employ 
and discharge all clerks, employees, and agents, determine their 
salaries, and prescribe and define their duties. 

“Section 3. The Vice Presidents shall perform such duties as may 
be assigned or delegated to them by the President, including the 
power to sign contracts and other instruments. 



U. S. SHIPPING BOARD YS. AETNA CASUALTY AND SURETY CO. H3 

‘‘Section 4. (a) The Treasurer shall be the accountably officer for 
all the funds and securities of the Corporation and shall direct, subject 
to the instructions of the President and Board of Trustees, the finances 
of the Corporation. 

c ‘(b) It shall be the duty of the Treasurer to collect, ijeceive, and 
hold all moneys, notes, bonds, certificate of stock, and oth^r evidences 
of value and security of the Corporation and deposit them in such 
depositories, under such condition, as may be approved by the Presi¬ 
dent and Board of Trustees. 

158 “(c) He shall establish and keep controlling account of all 
receipts and disbursements including trust records of all notes, 

bonds, certificates of stock and other evidence of value and security; 
and under the provisions of the Act of Congress dated Jhly 1, 1918, 
and the rules and regulations of the Secretary of the Treasury, shall 
state and render the accounts and vouchers to the Treasurer for 
sudit, as the accountable officer of the Corporation. He shall, with 
the General. Comptroller, prescribe the necessary receipt and dis¬ 
bursement forms to be used in the statement of the account, and they 
shall promulgate from time to time rules and regulations covering 
the preparation and rendering of the accounts. 

‘•(d) He shall, with the President, sign all certificates of stock 
of the Corporation. 

^ k *(e) He shall, when requested by the President or the Board of 
-trustees, submit a statement setting forth the financial condition 
of the Corporation and with the General Comptroller annually pre¬ 
pare a financial statement for the meeting of the stockholders and a 
similar statement as of Juiie 30th each year for the annual report to 
Congress. 

“Section 5. (a) The General Comptroller shall be responsible for 
the formulation and administration of the general accounting policy 
of the Corporation. 

“(b) It shall be the duty of the General Comptroller of the 
Corporation to account to the President for all income a]nd for all 
disbursements of the Emergency Fleet Corporation, as shown by 
the records of the Comptroller’s "office. 

“(c) The General Comptroller shall be responsible to the Presi¬ 
dent for the bookkeeping and accounting methods, and for the proper 
recording of the assets, the liabilities, the income and expenditures 
of the Corporation. 

159 “(d) The General Comptroller shall be responsible for the 
certification and approval of the receipts ana disbursements. 

“(e) The General Comptroller shall render to the President cur¬ 
rently a balance sheet and income and profit and loss statement re¬ 
flecting the condition of the Emergency Fleet Corporation, and 
currently such other statistical information as may be required. 

“(f) Reports and information required from time to tijne having 
to do with the accounting of the United States Shipping Board 
Emergency Fleet Corporation shall be supplied by the General 
Comptroller to the President. The General Comptroller with the 
Treasurer shall compile for the annual report a statement to reflect 
the accounts and finances of the United States Shipping Board 
Emergency Fleet Corporation. 



114 u * S - SHIPPING B< >AItD VS. AETNA CASUALTY AND SURETY CO. 

“(g) Tlie General Comptroller is authorized to delegate signatory 
power to a deputy or deputies, or to such other assistants as he from 
time to time may find it necessary so to do. a copy of all such 
authorizations to be filed with the Secretary of the Corporation. 

“(h) The General Comptroller shall have full power and re¬ 
sponsibility. subject to the approval of the President, for the employ¬ 
ment of all persons in the accounting organization. 

u (i) The General Comptroller shall have full power to discharge 
any person under his jurisdiction with the approval of the President. 

“Section 6 . The Secretary shall keep the minutes of all meetings 
of the stockholders and of the Trustees, in books provided for that 
purpose. He may sign, with the President, in the name of the 
Corporation, all contracts and papers. He shall keep the seal 

160 of the company, and affix the same to all certificates of stock 
and such other instruments requiring the seal as mav be 

directed by the Trustees. He shall record all transfers of stock and 
cancel and preserve all certificates of stock transferred, and he shall 
also keep a record, alphabetically arranged in a stock book provided 
for the purpose, of ail those who are or shall have been within six 
years stockholders of the Corporation, showing their place of resi¬ 
dence, the number of shares held by them respectively, the time when 
they became owners of such shares, and the amount of stock actually 
paid in. 

“Article IV 
“stock 

“Section 1 . All certificates of stock shall be signed by the Presi¬ 
dent or a Vice-President, and the Treasurer, and be attested by the 
corporate seal. 

“Section 2. Certificates of stock shall be in the form approved by 
the stockholders. They shall be transferred only on the books of 
the company by the holder thereof, in person or by his attorney, upon 
surrender and cancellation of certificates for a like number of shares; 
but no shares shall be transferable until all previous calls thereon 
shall have been fully paid in or the shares have been forfeited for 
non-payment. 

“Section 3. The Trustees may declare dividends from the surplus 
or net profits of the Corporation. 

“Article V 
“miscellaneous 

“Section 1. The seal of the company shall be— 

[seal] 

“Section 2. The fiscal or business year of the company shall begin 
the First day of July and end on the Thirtieth day of June of each 
year. 

“Section 3. These by-laws may be amended by the Trustees, 

161 by a majority vote thereof, at a regular or special meeting.” 


I 


I 


s. 


SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 


115 


Exhibit B 


June 30, 1919. 

For your information I quote the following resolution adopted by 
the Shipping Board at a meeting held on June 27, 1919: 

‘‘Whereas, The United States Shipping Board is charged with the 
responsibility of conducting all of the powers under the Shjipping 
Act, either directly or through the agency of its subordinate 
organization, the Emergency Fleet Corporation; and 
“Whereas, It is desired to unify and standardize matters of prac¬ 
tice and procedure and to set up a system of centralized responsibility 
in regard to the legai affairs of the Board and the Emergency Fleet 
Corporation: I 

“Now be it resolved, That the General Counsel of this Boajrd who 
is simultaneously the General Counsel of the Emergency Fleet 
Corporation be, and is hereby, vested with complete responsibility 
and authority over the legal affairs of this Board and the Emergency 
Fleet Corporation, subject only to accountability directly!to this 
Board for his conduct of his said office, and that he is hereby vested 
with full authority over phases of the legal affairs of this Bofrrd and 
the Emergency Fleet Corporation, including common law,; equity, 
admiralty, legislation, claims, contracts, litigation, and all other 
legal matters. ; 

“That pursuant to the complete authority and responsibility hereby 
vested in him he is authorized to employ, retain, discharge, accept 
the resignation of any member of the Legal Department qf either 
this Board or the Emergency Fleet Corporation; hereby superseding 
all other resolutions on the subject.” j 

John J. Flaherty, Assistant Secretary. 


162 It was orally stipulated by the parties in open court, 

“That throughout all of the time since the organization of 
the United States Shipping Board Emergency Fleet Corporation,! 
now the United States Shipping Board Merchant Fleet Corporation 
all of the outstanding capital stock of that Corporation has beer 
* * * owned by the United States of America”, | 

and that the form of the bond described in the declaration herein wa 
prepared by the plaintiff and not by the defendant. 

It was further orally stipulated by the parties in open court tha 
Joseph A. Honsick, for more than seventeen years next before tb 
trial had been an employe in the accounting department of Unite 
States Shipping Board Merchant Fleet Corporation and of its succe 
sor United States Maritime Commission, and is familiar; with tb 
methods and systems of records and the keeping of files ill both tb 
United States Shipping Board and United States Shipping Boar 1 
Merchant Fleet Corporation throughout all of the time qf his ei 
ployment by the Fleet Corporation; that he had examined all recor 
and files of the Shipping Board and the Fleet Corporation for t] 
purpose of ascertaining whether, prior to March 30, 1922,! the fun 
tion of protecting the interests of the United States, or the Fleet Co 
poration or the Shipping Board against any surety or guarantor, ha 
been delegated to any particular officer or employe, or set! of office: 
or employes of the Shipping Board or the Fleet Corporation, 
that, up to March 30, 1922, there was no such delegation^ in so f; 




116 U * S * SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 


as said records and files show. And thereupon the defendant offered 
in evidence the following documents, which were received and marked 
“Defendant’s Exhibit I.” 


Please Detach this Voucher Before Presenting Check 

The Attached check in full Payment of your account 
viz: Remittance to U. S. Shipping Board closing out 
Trust Fund___$3098. 49 

Sigsbee. Humphrey & Co., Inc., 

23 South William Street , Xeic York. 


163 Original remittance manifest No. 11-2220 

Date Dec. 30,1921. 
Deposit No. 183-223. . 
Cash Bk. Page 8. 
Debit Advice No. 

Form 7056 
9-20-15M 

Division of Operations 

United States Shipping Board 

General Comptroller’s Department 

North Atlantic District 

Remitter Sigsbee, Humphrey & Co., 

Address New York City. 

Date of Check 12/20/21. 

Check Number 3330. 

Details, The Seaboard National Bank. 

Amount, 3,996.49. 

Amount withdrawn from Sigsbee, Humphrey & Co., Inc. represent¬ 
ing balance of U. S. Shipping Board Trust Funds under their con¬ 
trol, said agent having become inactive. 

The above amount is to be applied as part reimbursement for an 
advance in the sum of $90,000.00 made to Sigsbee, Humphrey & Co., 
out of McAllister Bros. U. S. Shipping Board depository account on 
November 11,1920 by draft #32. 

Geo. E. McCann, 
Disbursing Officer. 
Ref. File-McC 




U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. \YJ 

December 22nd, 1921. 

Sigsbee, Humphrey & Co., 

23 South William Street , 

New York City. 

Subject: Acknowledgment of Remittance Covering closiijg out of 

U. S. Shipping Board Trust Fund Account. 

Gentlemen: This will acknowledge receipt of yours of the 20th 
instant enclosing your check #3330 drawn on the Seaboard National 
Bank, N. Y., in favor of the U. S. Shipping Board, E. F. |C., in the 
sum of $3,996.49. 

This remittance I note represents the entire balance of U. S. Ship¬ 
ping Board Trust Funds under your control as Manager, Operator 
and/or Managing Agent. Under no circumstances, now that said 
Trust Fund has been closed out, should this account be reopened with 
depository. 

Subsequent cash receipts and disbursements will be handled 
164 in a manner outlined in General Comptroller’s Order #134J., 
Treasurer’s General Order #14, dated October 17th, 1921, a 
copy of which is attached hereto. 

In remitting payments to this office covering reimbursement for 
P. & I. Insurance claims, please state whether the original payment 
was made to the claimant by yourselves previous to the closing out 
of U. S. Shipping Board Trust Fund, or whether same was paid by 
U. S. Shipping Board direct and transmitted to you, as this infor¬ 
mation is required account of new code system. Also please acknowl¬ 
edge receipt of this nature of payment in space provided on the face 
of all Johnson & Higgins checks. 

Kindly accept our thanks for this remittance, and advance appre¬ 
ciation goes forward for your cooperation with the above instructions. 
Very truly yours. 

Geo. E. McCann, 

Disbursing Officer . 

ByF. A. Matson, 

Auditor of Receipts. 

McC: FAM: Ks 

Enel. 

And thereupon the said issues in said cause were submitted to the 
Court upon written briefs of the respective parties and by the Court 
taken under advisement. 


filed with 
following, 


Thereafter, on December 29, 1936, the Court made and 
the Clerk a memorandum in the words, letters, and figures 
to wit: 

165 “I think that the requirement of notice contained ifi the bond 
is a condition precedent of liability: that the los^ sustained 
was of the character such that notice of loss was required: that notice 
was not given within the time and in the manner required by the 
bond and^ that there was no waiver by the defendant of the notice 
required by the bond.” i 

Thereafter, on January 4, 1937, the plaintiff made and filed in the 
office of the Clerk its motion for judgment and request for exceptions, 
in the words, letters, and figures following, to wit: i 

“Comes now the plaintiff and excepts to each and every finding and 
conclusion contained in the memorandum of Mr. Justice Bailey filed 

• i 





118 U * S * SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 


herein December 29, 1936, excepting specifically to the conclusion of 
the Court that the requirement of notice contained in the bond in 
suit is a condition precedent to liability of the defendant: and further 
excepting specifically to the conclusion of the Court that the loss 
sustained by the plaintiff was of the character such that notice of 
loss was required: and excepting further specifically to the finding 
and conclusion of the Court that notice was not given to the defend¬ 
ant within the time required by the bond; and further specifically 
excepting to the finding and conclusion of the Court that notice was 
not given in the manner required by the bond: and further specifi¬ 
cally excepting to the finding and conclusion of the Court that there 
was no waiver by the defendant of the notice required by the bond, 
and requests the Court to enter these exceptions in the record of 
this cause. 

“Furthermore, upon the ground that said findings and conclusions 
are contrary to law and to the evidence herein, this plaintiff moves 
the Court for findings and conclusions in its favor in accordance with 
the annexed ‘Findings of Fact and Conclusions of Law.'*' 

The findings of fact and conclusions of law annexed to said motion 
filed Januarv 4. 1937, as aforesaid, are in the words, letters, and 
figures following, to wit: 

166 “This cause having come on trial and having been submitted 
to the court, sitting without a jury, upon the pleadings, the 

stipulation of facts, filed June 16, 1936. the supplementary stipulation 
of facts, filed November 12, 1936, and the further stipulation of facts 
made orally in open court, and the evidence introduced in open court, 
and the memoranda and briefs of points and authorities on behalf of 
the respective parties, upon the following issues, that is to say: 

“(A) Whether compliance by the obligee with the requirement for 
notice as contained in the provision of the bond. Exhibit A annexed 
to the declaration in this action—reading—‘upon the discovery by 
the corporation of any evidence of the loss forming the basis of a 
claim hereunder, the corporation shall give to the surety, at its Home 
Office, immediate written notice thereof, with all available facts, and 
in any event, within thirty days after such discovery * * *' con¬ 

stitutes a condition precedent to any liability of the defendant under 
the said bond. 

“(B) Whether, if such compliance is a condition precedent to such 
liability, the defendant has received the notice thereby required 
within the time in said condition prescribed. And the court on 
December 29, 1936, having caused to be filed with the Clerk a memo¬ 
randum decision in the following language: 

“ ‘I think that the requirement of notice contained in the bond is 
a condition precedent of liability: that the loss sustained was of the 
character such that notice of loss was required: that notice was not 
given within the time and in the manner required by the bond and 
that there was no waiver by the defendant of the notice required by 
the bond.’ 

“Now, the parties appearing by their respective counsel, the court 
makes the following Findings of Fact and Conclusions of 

167 Law: 

“1. All of the matters and things set forth in paragraph 2 
of the stipulation of facts herein filed are true; 

“2. All of the matters and things set forth in paragragh 3 of 
the stipulation of facts herein filed are true; 


U. S. SHIPPING BOAIiD VS. AETNA CASUALTY AND SURETY CO. X19 


“3. All of the matters and things set forth in paragraph 4 of the 
stipulation of facts herein filed are true; | 

“4. All of the matters and things set forth in paragraph 5 of the 
stipulation of facts are true; 

“5. All of the matters and things set forth in paragraph 6 of the 
stipulation of facts are true; 

“6. All of the matters and things set forth in paragraph 7 of the 
stipulation of facts are true; 

'*7. All of the matters and things set forth in paragraph 8 of the 
stipulation of facts are true: 

“8. All of the matters and things set forth in paragraph 9 of 
the stipulation of facts are true: > 

“9. Ail of the matters and things set forth ini paragraph 10 of the 

stipulation of facts are true: 1 

* * \ 

“10. All of the matters and things set forth inlparagraph 11 of the 
stipulation of facts are true; i 

*11. All of the matters and things set forth in paragraph 12 of the 
stipulation of facts are true; 

‘•12. All of the matters and things set forth in paragraph 13 of 
the stipulation of facts are true; 

“13. All of the matters and things set forth ip paragraph 14 of 
the stipulation of facts are true; 

“14. All of the matters and things set forth in paragraph 15 of 
the stipulation of facts are true; 1 

“15. All of the matters and things set forth in paragraph 16 of the 
stipulation of facts are true; 

168 “16. All of the matters and things set forth in paragraph 17 

of the stipulation of facts are true; j 

“17. All of the matters and things set forth in paragraph 18 of 
the stipulation of facts are true; 


“18. All of the matters and things set forth in paragraph 19 of 
the stipulation of facts are true; 

“19. All of the matters and tilings set forth in paragraph 20 of 
the stipulation of facts are true; 

“20. All of the matters and things set forth in paragraph 21 of 
the stipulation of facts are true; 

“21. All of the matters and things set forth in paragraph 22 of 
the stipulation of facts are true; 1 

“22. All of the matters and things set forth in paragraph 23 of 
the stipulation of facts are true; ' 

“23. All of the matters and things set forth in paragraph 24 of 
the stipulation of facts are true; 1 _ 

“24. All of the matters and things set forth in paragraph 25 of 
the stipulation of facts are true; 

“25. All of the matters and things set forth in paragraph 26 of 
the stipulation of facts are true; 1 

“26. All of the matters and things set forth in paragraph 27 of 
the stipulation of facts are true; 

“27. All of the matters and things set forth in paragraph 28 of 
the stipulation of facts are true; 

“28. All of the matters and things set forth in paragraph 29 of 
the stipulation of facts are true; 

“29. All of the matters and things set forth in paragraph 30 of 
the stipulation of facts are true; 


J 




118 U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 


herein December 29, 1936, excepting specifically to the conclusion of 
the Court that the requirement of notice contained in the bond in 
suit is a condition precedent to liability of the defendant: and further 
excepting specifically to the conclusion of the Court that the loss 
sustained by the plaintiff was of the character such that notice of 
loss was required: and excepting further specifically to the finding 
and conclusion of the Court that notice was not given to the defend¬ 
ant within the time required by the bond; and further specifically 
excepting to the finding and conclusion of the Court that notice was 
not given in the manner required by the bond: and further specifi¬ 
cally excepting to the finding and conclusion of the Court that there 
was no waiver by the defendant of the notice required by the bond, 
and requests the Court to enter these exceptions in the record of 
this cause. 

“Furthermore, upon the ground that said findings and conclusions 
are contrary’ to law and to the evidence herein, this plaintiff moves 
the Court for findings and conclusions in its favor in accordance with 
the annexed ‘Findings of Fact and Conclusions of Law.**' 

The findings of fact and conclusions of law annexed to said motion 
filed January 4, 1937, as aforesaid, are in the words, letters, and 
figures following, to wit: 

166 “This cause having come on trial and having been submitted 
to the court, sitting without a jury, upon the pleadings, the 

stipulation of facts, filed June 16, 1936, the supplementary stipulation 
of facts, filed November 12, 1936, and the further stipulation of facts 
made orally in open court, and the evidence introduced in open court, 
and the memoranda and briefs of points and authorities on behalf of 
the respective parties, upon the following issues, that is to say: 

“(A) Whether compliance by the obligee with the requirement for 
notice as contained in the provision of the bond. Exhibit A annexed 
to the declaration in this action—reading—‘upon the discovery by 
the corporation of any evidence of the loss forming the basis of a 
claim hereunder, the corporation shall give to the surety, at its Home 
Office, immediate written notice thereof, with all available facts, and 
in any event, within thirty days after such discovery * * *’ con¬ 

stitutes a condition precedent to any liability of the defendant under 
the said bond. 

“(B) Whether, if such compliance is a condition precedent to such 
liability, the defendant has received the notice thereby required 
within the time in said condition prescribed. And the court on 
December 29, 1936, having caused to be filed with the Clerk a memo¬ 
randum decision in the following language: 

“ ‘I think that the requirement of notice contained in the bond is 
a condition precedent of liability: that the loss sustained was of the 
character such that notice of loss was required: that notice was not 
given within the time and in the manner required by the bond and 
that there was no waiver by the defendant of the notice required by 
the bond.’ 

“Now, the parties appearing by their respective counsel, the court 
makes the following Findings of Fact and Conclusions of 

167 Law: 

“1. All of the matters and things set forth in paragraph 2 
of the stipulation of facts herein filed are true; 

“2. All of the matters and things set forth in paragragh 3 of 
the stipulation of facts herein filed are true; 


U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. H9 

“3. All of the matters and things set forth in paragraph! 4 of the 
stipulation of facts herein filed are true; 

‘‘4. All of the matters and things set forth in paragraph 5 of the 
stipulation of facts are true; 

“5. All of the matters and things set forth in paragraph 6 of the 
stipulation of facts are true; 

“6. All of the matters and things set forth in paragraph 7 of the 
stipulation of facts are true; 

“7. All of the matters and things set forth in paragraph 8 of the 
stipulation of facts are true: 

“8. All of the matters and things set forth in paragraph 9 of 
the stipulation of facts are true; 

“9. All of the matters and things set forth in paragraph 10 of the 
stipulation of facts are true; 

“10. All of the matters and things set forth in paragraph 11 of the 
stipulation of facts are true; 

“11. All of the matters and things set forth in paragraph 12 of the 
stipulation of facts are true; 

“12. All of the matters and things set forth in paragraph 13 of 
the stipulation of facts are true; 

“13. All of the matters and things set forth in paragraph 14 of 
the stipulation of facts are true; 

“14. All of the matters and things set forth in paragraph 15 of 
the stipulation of facts are true; 

“15. All of the matters and things set forth in paragraph 16 of the 
stipulation of facts are true; 

168 “16. All of the matters and things set forth in paragraph 17 

of the stipulation of facts are true; 

“17. All of the matters and things set forth in paragraph 18 of 
the stipulation of facts are true; 

“18. All of the matters and things set forth in paragraph 19 of 
the stipulation of facts are true; 

“19. All of the matters and things set forth in paragraph 20 of 
the stipulation of facts are true; 

“20. All of the matters and things set forth in paragraph 21 of 
the stipulation of facts are true; 

“21. All of the matters and tilings set forth in paragraph 22 of 
the stipulation of facts are true; 

“22. All of the matters and things set forth in paragraph 23 of 
the stipulation of facts are true; 

“23. All of the matters and things set forth in paragraph 24 of 
the stipulation of facts are true; 

“24. All of the matters and things set forth in paragraph 25 of 
the stipulation of facts are true; 

“25. All of the matters and things set forth in paragraph 26 of 
the stipulation of facts are true; 

“26. All of the matters and things set forth in paragraph 27 of 
the stipulation of facts are true; 

“27. All of the matters and things set forth in paragraph 28 of 
the stipulation of facts are true; 

“28. All of the matters and things set forth in paragraph 29 of 
the stipulation of facts are true; 

“29. All of the matters and things set forth in paragraph 30 of 
the stipulation of facts are true; 



120 U - s * SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 


“30. All of the matters arid things set forth in paragraph 31 of 
the stipulation of facts are true; 

“31. All of tlie matters and things set forth in paragraph 

169 32 of the stipulation of facts are true; 

“32. All of the matters and things set forth in paragraph 
33 of the stipulation of facts are true; 

“33. All of the matters and things set forth in paragraph 34 of 
the stipulation of facts are true; 

“34. All of the matters and things set forth in paragraph 35 of 
the stipulation of facts are true; 

“35. All of the matters and things set forth in paragraph 36 of 
the stipulation of facts are true; 

“36. All of the matters and things set forth in paragraph 37 of 
the stipulation of facts are true; 

“37. All of the matters and things set forth in said supplementary 
stipulation of facts are true: 

“38. All of the matters and things orally stipulated on the record 
at the trial are true, to wit: 

“1. That throughout all the time since the organization of the 
United States Shipping Board Emergency Fleet Corporation, after¬ 
wards United States Shipping Board Merchant Fleet Corporation, 
all of the outstanding capital stock of that corporation has been 
owned by United States of America, and that the form of the bond 
described in the declaration herein and upon which this action is 
based was prepared by the plaintiff and not by the defendant. 

“The Court concludes as matters of law: 

“1. That compliance by the obligee in the said bond with the re¬ 
quirement for notice contained in the provision of the said bond, and 
reading: ‘upon the discovery by the corporation of any evidence of 
the loss forming the basis of a claim hereunder, the corporation shall 
give to the surety, at its home office, immediate written notice thereof, 
with all available facts, and in any event, within thirty days after 
such discovery * * does not constitute a condition precedent 
to liability of the defendant under said bond. 

170 “2. That due and timely notice as required by the said pro¬ 
vision of said bond was given to and received by the defendant 

herein.” 

The said motion filed January 4, 1937, as aforesaid, was supported 
by a memorandum of points and authorities in conformity to the 
rule of this court. 

Thereafter on January 5, 1937,-both parties appeared before the 
Court by their respective attorneys, the plaintiff presented to the 
Court and requested the Court to make the findings of fact and 
conclusions of law annexed to said motion filed January 4, 1937, as 
aforesaid, and presented to the Court and requested the Court to 
grant its said motion for judgment. Whereupon the Court did re¬ 
fuse to make any of the findings of fact, and did refuse to make either 
of the conclusions of law. and did deny the plaintiff’s said motion 
for judgment. And at the same time the plaintiff excepted, sep¬ 
arately, as to each of said findings of fact and conclusions of law to 
the refusal of the Court to make the same, and excepted to the de¬ 
nial of its said motion for judgment, and the said exceptions were 
at the same time allowed by the Court. 


U. S. SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 121 

And at the same time the Court did make and sign findings of fact 
and conclusions of law in the words, letters, and figures following, to 
wit: 

“In the above-entitled cause tried before the undersigned Justice 
of the District Court of the United States for the District of Colum¬ 
bia, without a jury, upon issues submitted in a written stipulation 
signed by counsel for the parties hereto and duly filed herein, the 
Court, from the pleadings, evidence and stipulation of facts signed 
by counsel for the parties hereto and duly filed herein, makes the fol¬ 
lowing findings of fact and reaches the following conclusions of law: 

“(1) Upon the issue submitted in subparagraph (a) of paragraph 
1 of the stipulation of counsel reading as follows: 

171 “‘(a) Whether compliance by the obligee with the require¬ 
ment for notice as contained in the provision of the bond, Ex¬ 
hibit A annexed to the declaration in this action, reading—“upon the 
discovery by the corporation of any evidence of the loss forming the 
basis of a claim hereunder, the corporation shall give to the surety, 
at its own home office, immediate written notice thereof, with all 
available facts, and in any event, within thirty days after such dis¬ 
covery, * * * “constitutes a condition precedent to any liability 
of the defendant under the said bond.’ 

“the Court Concludes and rules as follows: 

“The Compliance by the obligee with the requirement for notice 
as contained in the provision of the bond in suit, and set forth in the 
foregoing issue (a) of paragraph 1 of the stipulation constitutes a 
condition precedent to any liability of the defendant under fhe said 
bond. | 

“(2) Upon the issue submitted in subparagraph (b) of paragraph 
1 of the stipulation of counsel reading as follows: 

“‘(b) Whether, if such compliance is a condition precedent to 
such liability, the defendant has received the notice thereby Required 
within the time in said condition prescribed.’ 

“the Court finds as follows: . j 

“The defendant has not received the notice required in the; bond in 
suit within the time prescribed in the aforesaid condition! of said 
bond, and there was no waiver by the defendant of thie notice 
required in said bond. 

“(3) As the ruling and finding above set forth disposes of the 
whole case in favor of the defendant, the defendant is en- 

172 titled to a verdict and judgment in its favor. 

“January 5, 1937.” “Jennings Bailey, Justice . 

And at the same time the plaintiff did request exceptions in the 
words, letters, and figures following, to wit: ; 

“The plaintiff’s motion for judgment and its exceptions to the 
findings and conclusions of the court, filed herein on January 4,1937, 
duly came on for hearing on this day, the parties appearing by 
their respective attorneys, and the court having duly considered 
the said motion and the arguments of counsel doth overrule and 
deny the same, to which the plaintiff excepts; and the plaintiff’s said 
exceptions are severally allowed. 

“At and before the time of the signing by the^ court of itjs findings 
of fact and conclusions of law herein, the plaintiff duly requested 
the court to make findings of fact and conclusions of law as set 
forth in the said motion filed as aforesaid on January 4, ! 1937, and 
the court having duly considered the same doth decline and refuse 



122 u * s - SHIPPING BOARD VS. AETNA CASUALTY AND SURETY CO. 

to make any of the findings of fact and conclusions of law so 
requested by the plaintiff, and the plaintiff excepts separately, as 
respects each finding and each conclusion so requested, to the refusal 
of the court to make the same; and the plaintiff further excepts to 
the conclusion of the court that the requirement of notice contained 
in the bond in suit is a condition precedent of liability of the 
defendant; and further excepts to the conclusion of the court that 
the loss sustained by the plaintiff was of the character such that 
notice of loss was required; and further excepts to the finding and 
conclusion of the court that notice was not given to the defendant 
within the time required by the bond: and further excepts to the 
finding and conclusion of the court that notice was not given in the 
manner required by the bond: and further excepts to the finding 
and conclusion of the court that there was no waiver by the 
173 defendant of the notice required by the bond; and further 
excepts to the finding and conclusion of the court that the 
defendant is entitled to a verdict; and further excepts to the refusal 
of the court to render judgment in favor of the plaintiff as respects 
the issue designated as (A) in the stipulation herein filed June 16, 
1936; and further excepts to the refusal of the court to render judg¬ 
ment in favor of the plaintiff as respects the issue designated as (B) 
in the stipulation herein filed June 16. 1936; and further excepts 
to the rendition of judgment for the defendant. 

“Each and every of said exceptions is allowed. 

“Done January 5, 1937. 

“Jennings Bailey, Justice” 

And the said exceptions were at the same time severally allowed 
by the Court. 

The foregoing contains the substance of all of the testimony bear¬ 
ing upon the exceptions herein reserved on behalf of plaintiff. 

And thereupon, and as all of said exceptions were duly noted and 
allowed as aforesaid and duly entered upon the minutes of the court, 
and because the matters and things hereinbefore recited are not 
matters of record, in order to make the same a part of the record 
herein, which is hereby ordered, so that the plaintiff may have its 
case reviewed on appeal, the plaintiff, by its attorneys, moves the 
court to sign and seal this, its bill of exceptions, to have the same 
force and effect as if each and every one of said exceptions had 
been separately signed and sealed which motion is granted by the 
court; and thereupon the plaintiff tenders this, its bill of exceptions, 
and requests the court to sign and seal the same, which is accordingly 
done, now for then, this oth day of March, 1937. 

Approved: Jennings Bailey, Justice. 

Leslie C. Gabnett, 

U. S. Attorney , 

Attorney for Plaintiff. 

Challen B. Ellis. 

Attorney for Defendant. 

(Endorsement on cover:) No. 6960. United States Shipping Board 
Merchant Fleet Corporation, to the use of the United States of 
America, appellant, vs. The Aetna Casualty and Surety Company, a 
corporation. United States Court of Appeals for the District of 
Columbia. Filed Apr. 27, 1937. Moncure Burke, Clerk. 

U. S. GOVERNMENT PRINTING OFFICE: 193} 


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INDEX 


SUBJECT INDEX 


Preliminary Statement.. 

The Facts.-... 

Assignment of Errors..—-- 

Summary of Argument..-. 

Argument: 

I. The bond is a 'performance bond and rules of law requir¬ 
ing notice of loss under fidelity bonds do not control. 
The contract and the bond must be read together. 

A. The Contract “Requires" a Performance Bond. 

B. The Bond Analyzed. 

C. Rules of Law Applicable to this Bond. 

D. The Accounting Provisions of the Bond. 

II. No notice of default is required under the accounting 
provisions of this bond. 

III. Notice is not a condition precedent to liability under 

this bond. 

IV. Due notice was given. 

V. Further notice than that actually given was waived 
and appellee is estopped to deny compliance with 
the notice requirements. 

Conclusion_____ 


Page 

1 

{2 

21 

23 

! 

24 


j 

25 

2j7 

23 

3j3 

36 


42 

j 

5k 

72 

I 

7j6 


AUTHORITIES CITED 

Aetna Indemnity Co. v. J. R. Crowe Coal & Mining Co., 154 


Fed. 545 (C. C. A. 6).._---- 30 

American Surety Co. y. Pauly, 170 U. S. 133, 42 L. Ed. 977- 30, 68 

American Surety Co. v. Bankers, 67 Fed. (2d) 802 (C. C. A. 8) _ _ 45, 46 

Atlantic Trust Co. v. Laurinburg, 163 Fed. 690 (C. C. A. 4)-30, 7*5 

Bergholm et al. v. Peoria Life Ins. Co., 284 U. S. 489- 30, 46 

Carstairs et al. v. American Bonding Co., 116 Fed. 449 (Cert. 

denied 187 U. S. 644)- 31, 42 

Citizens Trust & Guaranty Co. v. Globe & Rutgers Fire Ins. Co., 

229 Fed. (2d) 26 (C. C. A. 4).... 66 

Clark v. London Assurance Corp. {Nevada), 195 Pac. 809- 48 

Colton v. Fidelity <& Casualty Co., 41 Fed. 506..— 31 

Commercial Casualty Insurance Co. v. Fruin, 32 F. (2d) 425 

(C. C. A. 8)... 46 

15416—37-1 (I) 














II 

Continental Fire Insurance Co. v. Whitaker, 112 Tenn. 151, 79 

S. W. 119. 49 

Guarantee Co. v. Mechanics Bank, 80 Fed. 766 (Rev. other 

grounds, 173 U. S. 582)_ 30, 31, 42, 46, 68 

Hartford Fire Insurance Co. v. Redding , 47 Florida, 228; 37 

So. 62_ 50 

Hurt v. Employers' Liability Assurance Corp. Ltd., 122 Fed. S28 

(Cir. Ct. W. D. Kentucky)... 47 

Imperial Fire Ins. Co. v. Coos County, 151 U. S. 452_30, 46 

Kruger v. St. Louis, St. Charles & Western Railroad Co., 185 

Mo. 227. 47 

Kahnweiler et al. v. Phoenix Insurance Co., 57 Fed. 562 (Cir. Ct. 

D. Kansas) (Rev. other grounds, 67 Fed. 4S3).. 47 

Maryland Casualty Co. v. First National Bank, 246 Fed. 892 

(Cert, denied 246 U. S. 670)....30, 42 

Maryland Casualty Co. v. Bank of England, 2 F. (2d) 793 (C. C. 

A. 8).....46, 54 

Maryland Fidelity Co. v. Colton, 1S6 U. S. 342, Aff. 103 Fed. 199- 42 

Minnesota Mutual Life Ins. Co. v. Marshall, 29 F. (2d) 977_ 31 

Mutual Life Ins. Co. v. Hurni, 263 U. S. 167___ 30 

Murray v. American Surety Co., 69 Fed. (2d) 147 (C. C. A. 6)__ 44 

National Benefit Association v. Elzie, 35 App. D. C. 294_31, 74 

National City Bank v. National Surety Co., 58 Fed. (2d) 7 (C. 

C. A. 6).... 45 

New Amsterdam Casualty Co. v. U. S. Shipping Board, 16 Fed. 

(2d) S47 (C. C. A. 4)... 43 

New Amsterdam v. Central National Fire Ins. Co., 4 Fed. (2d) 

203 (C. C. A. 8)..... 44 

North B. & M. Insurance Co. v. Edmundson , 194 Va. 486, 52 S. E. 

350....... 49 

Peake v. United States, 16 App. D. C. 415_ 24 

Reynolds v. Detroit Fid. & Surety Co., 19 F. (2d) 110 (C. C. A. 6)_ 46 

St. Louis Architectural Iron Co. v. New Amsterdam Casualty 

Co., 40 Fed. (2d) 344 (C. C. A. 8).. 45 

Stipcich v. Ins. Co., 277 U. S. 311_ 30 

Supreme Council v. N. Y. Fidelity & Casualty Co., 63 Fed. 48__ 30 

Southern Surety Co. v. MacMillan Co., 58 F. (2d) 541 (10th 

Circuit) 1932_•_ 50 

Thompson v. Phoenix Ins. Co, 136 U. S. 287_ 30 

Tyrer v. Chew, 7 App. D. C. 175_ 24 

United States to use District of Columbia v. Bayly, 39 App. D. C. 

105. 24,30 

United States Fidelity & Guaranty Co. v. United States, 191 

U. S. 416... 30 

United States Fidelity <& Guaranty Co. v. Hughes, 40 F. (2d) 34 
(10th Circuit)_ 53 


























in 


i 

i 

j 

United States Fidelity & Guaranty Co. v. Barber , 70 Fed. (2d) 


220 (C. C. A. 6).'.58,62 

Whelan v. Western Assurance Co., 185 Fed. 490 (C. C. A. 2)— 45 

Williams v. U. S. Fidelity Co. 105 Md. 490, 66 At. 495. 30, 62 

Wachovia Bank & Trust Co. v. Independence Indemnity Co., 

37 F. (2d) 550 (C. C. A. 4). 46 


! 


i 


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i 

l 

I 


I 


i 

I 


I 

j 









In the United States Court of Appeals 
for the District of Columbia 

April Teem, 1937 


No. 6960 

j 

I 

United States Shipping Board Merchant Fleet 
Corporation, to the Use of the United States 
of America, appellant 

v. ! 

i 

The Aetna Casualty and Surety Company, a 

Corporation, appellee 

7 I 


APPEAL FROM THE DISTRICT COURT OF THE UNITED 
STATES FOR THE DISTRICT OF COLUMBIA 


BRIEF FOR APPELLANT 


PRELIMINARY STATEMENT 

i 

j 

This appeal is taken from a judgment of the Dis¬ 
trict Court of the United States for the District of 
Columbia rendered January 5, 1937, in favor of 
defendant below (appellee here). The action whs 
brought at law against the surety upon a bond 
dated January 27,1920, conditioned upon the faith- 

oo | 

j 

i 

j 

i 

I 


2 


ful performance of certain provisions of an agency 
contract, referred to in the bond, for default by the 
principal. ! In addition to the accounting provi¬ 
sions usually found in a bond guaranteeing faith¬ 
ful performance, there were added certain provi¬ 
sions customarily found only in fidelity bonds and 
other forms of insurance contracts (R. 16). 

Sigsbee Humphrey & Company, Inc., herein¬ 
after designated “the operator 7 ’ or “the Com¬ 
pany 77 , is the principal and obligor named in the 
bond. The Aetna Casualty and Surety Company, 
a corporation, hereinafter called “the surety 77 , is 
the defendant. And United States Shipping 
Board Emergency Fleet Corporation (name after¬ 
wards changed by statute to United States Mer¬ 
chant Fleet Corporation) hereinafter called “the 
Corporation 77 , is the obligee and the plaintiff below 
(appellant here). 

The case was tried without a jury upon written 
stipulations of fact and upon the issues stated 
therein (R. 65, 109) and upon supplemental oral 
stipulations (R. 115). It was submitted upon 
briefs (R. 117). At the time judgment was ren¬ 
dered the Court made certain findings of fact and 
conclusions of law to all of which plaintiff excepted 
(R. 121). All of the exceptions were allowed 
(R. 122). 

the facts 

At and before the time the bond was made the 
Company was engaged in managing and operating 




3 


merchant vessels owned by the United States, 
under agreements, nominally with the Corpork- 
tion, but in reality with the United States, for con- 
venience described as M2 and 02 Agreements, the 
forms of which are attached to the declaration as 
Exhibits 1 and 2 (R. 7,10). The bond is exhibit 3 
(R. 15). March 4, 1920, with the consent of the 
surety (R. 23), a new form of managing and oper¬ 
ating agreement called M03 was made. The 
United States, by name, instead of the Corpora¬ 
tion, was party to that agreement (R. 20). 

The form of the managing and operating agree¬ 
ment was again changed, the surety consenting (R. 
29), to M04 on February 17, 1921 (R. 24). The 
agreement is dated February 10th but was not (de¬ 
livered until seven days later (R. 66). This agree¬ 
ment, like the M03, also was made in the name of 
the United States. 

The bond (R. 16) contains these recitals ahd 
conditions: 

Whereas the United States Shippihg 
Board Emergency Fleet Corporation has 
entered into an agreement with Sigsbee 
Humphrey & Company for the operating 
and/or managing of certain vessels hereto¬ 
fore or hereafter assigned to said Sigsbee 
Humphrey & Company, as Manager and/or 
Operators; and 

Whereas the United States Shippihg 
Board Emergency Fleet Corporation ire- 
quired Sigsbee Humphrey & Company to 



4 


furnish a bond to save the said Corporation 
harmless against such pecuniary loss as the 
Corporation shall sustain by any act of 
fraud, dishonesty, forgery, theft, embezzle¬ 
ment, wrongful abstraction, or willful mis¬ 
application of any moneys or funds that 
may come into the possession or control of 
Sigsbee Humphrey & Company, during the 
life and by reason of the aforesaid agree¬ 
ment, and to properly account for, receive, 
and disburse said funds, including the 
prompt payment to the said Fleet Corpora¬ 
tion, of the amounts required by the terms of 
the aforesaid agreement. 

Now, therefore the condition of this ob¬ 
ligation is such that if the above boimden 
Sigsbee Humphrey & Company shall well 
and truly save the said Corporation harm¬ 
less against such pecuniary loss as the Cor¬ 
poration shall sustain by any act of fraud, 
dishonesty, forgery, theft, embezzlement, 
wrongful abstraction or willful misapplica¬ 
tion of any moneys or funds that may come 
into the possession or control of Sigsbee 
Humphrey & Company during the life and 
by reason of the aforesaid agreement, and 
shall properly account for, receive, and dis¬ 
burse said funds, including the prompt pay¬ 
ment to the said Fleet Corporation of the 
amounts required by the terms of the afore¬ 
said agreement, and at the expiration or 
earlier termination of its position, shall 
faithfully accoimt for and turn over to the 
said United States Shipping Board Emer- 


5 


I 


i 

gency Fleet Corporation, any moneys, prop¬ 
erty, or other funds for which it may be ac¬ 
countable, then this obligation shall be void, 
else to remain in full force and effect. 

This bond is given subject to the following 
conditions: 

First. Upon the discovery by the Corpora¬ 
tion of any evidence of the loss forming the 
basis of a claim hereunder the Corporation 
shall give to the Surety, at its Home Office, 
immediate written notice thereof, with all 
available facts, and in any event within 
thirty days after such discovery, and shall 
afford the Surety every reasonable facility 
for investigating the same. Payment of 
any such loss shall be made by the Surety 
promptly, after receipt from the Corpora¬ 
tion of satisfactory statement thereof. 
Upon the payment of a loss the Surety sliall 
be subrogated to all of the rights of the 
Corporation with respect thereto;'and the 
Corporation will execute any and all papers 
reasonably required by the Surety to effec¬ 
tuate that purpose. 

Secondly. This bond may be cancelled at 
any time by either the Corporation or the 
Surety giving to the other thirty days writ¬ 
ten notice thereof; providing that as to any 
vessel on voyage at the time of giving siich 
notice by the Surety and which voyage is 
not concluded before the date of cancella¬ 
tion mentioned in the notice, the bond sliall 
continue in force until ten days after the 
end of such voyage, and terminate at the 
expiration of such ten-day period. 


15416—37-2 








6 


The declaration states the foregoing facts, which 
are admitted, and alleges (R. 6, par. 14) that the 
operator did not faithfully or properly perform 
its obligations under the several managing and op¬ 
erating agreements, but wholly neglected to dis¬ 
charge such obligations or perform such duties, in 
that the operator came into possession and control 
of large sums of money belonging to the plaintiff, 
to the use of the United States, arising out of the 
operation and management of its ships, for which 
the operator was liable to account to the plaintiff; 
that the operator defaulted a number of times in 
that it did not account for such money; did not 
disburse such money solely for the operation, man¬ 
agement and business of the ships; did not faith¬ 
fully account for and turn over money and other 
property for which it was accountable; took credit 
for items for which it should have been debited; 
willfully withdrew from such moneys fees, com¬ 
missions, and expenses to which it was not entitled; 
wrongfully and willfully misrepresented facts and 
concealed material facts with respect to the han¬ 
dling of such moneys, all for the purpose of secur¬ 
ing, and it did thereby secure, from the plaintiff 
moneys for the purpose of carrying out the man¬ 
agement and operation of the ships and of paying 
fees and commissions to the operator to which it 
was not entitled; had misapplied and wrongfully 
and fraudulently appropriated funds belonging to 
the plaintiff for which it was accountable, and had 


7 


failed to account for such funds; that (par. 16) 
"by reason of the premises, plaintiff became entitled 
to receive from defendant $170,549.79, with in¬ 
terest; that (par. 18), 

Immediately upon evidence of loss by Rea¬ 
son of the acts of said agent, the plaintiff j at 
the instance of the United States of Amer¬ 
ica, gave to defendant notice thereof, to¬ 
gether with all available facts, and afforded 
defendant every reasonable opportunity tor 
investigating pecuniary loss. 

The defendant denies all of the allegations just 
recited; alleges that on and prior to March 1,1^27, 
plaintiff wras fully informed and had evidence as 
to all matters alleged as constituting a cause of ac¬ 
tion, and that the plaintiff wholly failed to give the 
defendant— 

any proper or sufficient notice within the 
terms of said bond * * * of any claim 

by reason thereof, or any notice to this de¬ 
fendant of any evidence forming the basis 
of a claim under the aforesaid agreements 
within thirty days after discovery theijeof 
* * * (R. 57). 

The parties stipulated that the issues— 

(a) Whether compliance by the obligee 
with the requirement for notice as contained 
in the provision of the bond, * * * 
reading— “upon the discovery by the cor¬ 
poration of any evidence of the loss f orniing 
the basis of a claim hereunder, the corpora¬ 
tion shall give to the surety, at its home of- 






8 


fice, immediate written notice thereof, with 
all available facts, and in any event, within 
thirty days after such discovery * * 

constitutes a condition precedent to any lia¬ 
bility of the defendant under said bond; and 
(b) whether, if such compliance is a con¬ 
dition precedent to such liability, the de¬ 
fendant has received the notice thereby 
required within the time in said condition 
prescribed (R. 65). 

should be submitted to and adjudicated by the 
court, without the intervention of a jury, before 
the trial of any other issue in the cause; and fur¬ 
ther stipulated that for the purpose of the trial of 
these issues the matter set forth in the stipulation 
should be taken as facts, the parties, respectively, 
reserving the right to object to any such matter as 
to its relevancy or materiality. 

The operator was a New York corporation, or¬ 
ganized June 16,1919. It was dissolved December 
16,1921, by proclamation of the Secretary of State 
of New York (R. 66, Stip., par. 8). Its operation 
of ships for the United States ceased September 23, 
1921 (R. 66 Stip., par. 10). Upon the substitution 
of a new bond with a different surety the bond was 
terminated May 14, 1921, subject to any liability 
arising out of transactions of the agent to date of 
termination (R. 67, Stip., par. 12; R. 85, Ex. 9; 
R. 86, Ex. 10). 

April 8,1921, the New York District Auditor of 
the Corporation wrote the operator to the effect 


9 


that instructions had been received from Washing¬ 
ton to withhold from the operator compensation 
due the operator under the M04 agreement in a 
sum sufficient to protect the Shipping Board on 
overpayment under the M03 agreement, whichj the 
District Auditor, from figures he said were inj his 
possession, said was approximately $50,000. He 
wrote further that such withholding would be 6nly 
until the operator and the General Comptroller of 
the Corporation should reach an agreement j(re- 
specting the amount of compensation). In the 
same letter he said also that any sum due the oper¬ 
ator above the amount of the apparent overpay¬ 
ment under M03 “on voyages 1 other than thosfe in 
controversy will be paid to you as promptly as 
possible” (R. 67, Stip., par. 13; R. 83, Ex. 5). 

Prior to March 30,1922, the function of protect¬ 
ing the interests of the United States, the Shipping 
Board or the Corporation against sureties or guar¬ 
antors had not been specifically delegated to \my 
particular officer or employe, or set of officer^ or 
employes, and up to that time there was no s^ich 
delegation (R. 115). 

On September 9, 1921, a controversy existed be¬ 
tween the General Comptroller’s Office, particu¬ 
larly D. S. Morrison, Chief Accountant, and the 

1 Certain voyages with respect to which the operator 
claimed compensation under M03, compensation for which 
the General Comptroller General contended should be op the 
basis of M2 and 02. 




10 


operator, as to the amount of compensation earned 
by the operator, the latter contending at that time 
(14 days before termination of the operator’s activ¬ 
ities as such) that greater compensation had been 
earned than had been received; and the former, 
that the operator had been over-paid. On that day 
J. E. Fetzer, of the Law Division, Fleet Corpora¬ 
tion, who had made a preliminary examination of 
the matter, reported to the General Counsel of the 
Corporation, in an elaborate memorandum (R. 67, 
87, Stip., par. 19, Ex. 11), wherein the contentions 
of the General Comptroller and conflicting conten¬ 
tions of the operator, and the provisions of the 
various managing and operating agreements on 
which such contentions were based, were set forth. 
From this memorandum it clearly appears that the 
controversy arose solely from conflicting interpre¬ 
tations of various provisions of the several 
agreements. 

Notwithstanding the fact that the operator may 
have made improper withdrawals from the trust 
fund on account of compensation claimed to "be due 
him, it did not necessarily follow that there would 
be any pecuniary loss therefrom, since the operator 
might in his accounting show that, under a proper 
interpretation of the various agreements for the 
management and operation of the vessels, neverthe¬ 
less he had not been overpaid. 

It is to be noted that under the M03 agreement 
there was a serious question as to the period to be 



11 


used in determining that portion of the operator’s 
compensation which was dependent upon net profits 
(R. 87, Ex. 11, at pp. 90, 91), as well as other 
serious questions which it was recognized would 
thereafter arise in connection with the final settle¬ 
ment and would subsequently seriously affect t^ie 

amount of compensation due to the operator. 

July 25,1922, Mr. Fetzer wrote the operator (lR. 

| 

67, 94, Stip., par. 21, Ex. 13) discussing certain of 
the points of difference, and stating that— 

in view of vour determined attitude to have 
* 

every contention of yours both as to faOts 
and law determined in your favor, without 
any indication whatever of any willingness 
to concede even trifling details, there seems 
but the usual course of resorting to le^al 
proceedings to enforce payment of the bal¬ 
ance due from you to the Government. 

August 18, 1922, the Disbursing Officer, New 
York, wrote the operator (R. 67, 96, Stip., par. £2, 
Ex. 14) that the Washington office had advised that 
deductions had been made by the operator frqm 
the trust fund account to the amount of $81,682J59 
on account of operating commissions; and that 
Washington had requested him to make collection 
from the operator, such deductions by the operator, 
as it was said, being in violation of Shipping Board 
accounting practice; and requested from the oper¬ 
ator a check for the amount. 

September 29, 1922, Mr. Fetzer wrote the oper¬ 
ator (R. 67, 97, Stip., par. 23, Ex. 15) that its— 



12 


entire account under the M03 agreement is 
being reviewed and adjusted in accordance 
with the terms of the contract so far as we 
have been able to agree and computations 
will be made on the several questions in dis¬ 
pute to show in dollars and cents the differ¬ 
ence involved. * * * You will be given 

another opportunity to settle the account 
before suit is actually commenced. 

October 11,1922, the Washington manager of the 
surety wrote the Treasurer of the Corporation (R. 
68, 97, Stip., par. 24, Ex. 16) that the surety— 

is holding collateral security under the bond 
in question, and as the principal is desirous 
of the release of said collateral, which it is 
our wish to do, it is necessary for us to ascer¬ 
tain what, if any liability may develop dur¬ 
ing the period our bond was in force, 
namely, between January 27,1920, and May 
14,1921.* 

October 24, 1922, the Treasurer replied (R. 68, 
98, Stip., par. 25, Ex. 17) as follows: 

Yours of the 11th instant, addressed to 
R. W. Bolling, relative the above subject, 

2 In the same letter it was said further: “In taking this 
matter up with your office day before yesterday, it was stated 
that a final audit of the accounts of Sigsbee Humphrey & 
Company was now being made and would likely be concluded 
during the present week. We would thank you to advise us 
at your early convenience as to whether there will be any 
claim under our bond, because if there is no claim we wish 
to return the collateral which we now hold to the principal 
without unnecessary delay.” 



13 


received today. Please be advised that We 
are taking np with our Auditing Depart¬ 
ment the matter of having this Operator’s 
accounts audited, and will advise you fur¬ 
ther in the near future. 

October 26, 1922, D. S. Morrison, Assistant jto 
the Director of Finance of the Corporation, ad¬ 
dressed a memorandum to Mr. Fetzer (R. 68, 98, 
Stip., par. 26, Ex. 18) discussing at length the 
points of difference with the operator, and attach¬ 
ing a statement (R. 68, 101, Stip., par 26, l}x. 
18-A) showing the results of computations, made 
on various hypotheses, according to contentions 
of the respective parties, of the compensation due 
the operator under the M03 agreement. 

November 13, 1922, Mr. Fetzer wrote Mr. Sigs- 
bee, President of the operator, to the effect that no 
formal statement of the operator’s account had 
been prepared; that the account would long ago 

i 

have been settled if it had been possible “to readi 
any understanding with you concerning the inter¬ 
pretation of various clauses in the M03 agree¬ 
ment’ y f that a statement of the account prepared 
for the purpose of bringing suit showed an ijti- 
debtedness of the operator to the amount of abojit 
$240,000; that under the interpretation of the cop- 
tract most favorable to the operator there was an 
indebtedness of “around” $100,000; and that if the 

3 Throughout this brief italics have been supplied except 
where otherwise noted. 


15416 — 37 - 


3 






14 


operator sincerely desired to effect settlement the 
Shipping Board would be glad to resume negotia¬ 
tions to that end (R. 68,102, Stip., par. 27, Ex. 19). 

A further statement of the account showing the 
operator indebted to the amount of $73,997.79, plus 
various disallowances totaling $3,834.78, was pre¬ 
pared by Field Auditor Steinmetz, and attached to 
his memorandum of November 8, 1922 (R. 68, 103, 
Stip., par. 27, Ex. 19-A). 

November 25, 1922, the Chairman of the Ship¬ 
ping Board wrote to the operator (R. 68, 106, 
Stip., par. 28, Ex. 191 / 2 ) referring to a letter of 
November 18, 1922, stating that the account had 
been “considered by several of our departments”, 
and was then before the Law Division with recom¬ 
mendation for suit; that the General Counsel had 
the recommendation under advisement, and doubt¬ 
less would come to a conclusion in the near future; 
and that the operator's request for a conference 
had been communicated to the General Counsel. 

December 13, 1922, the General Counsel wrote 
the operator (R. 68, 106, Stip., par. 29, Ex. 20) 
to the effect that the matter of settlement of the 
account under the M03 agreement had been re¬ 
ferred to him; that the General Counsel had made 
careful examination of “the reports of our audi¬ 
tors and assistant counsel”, and concurred in the 
conclusion that “this account seems to indicate 
that you are indebted in the sum of $291,172.66”; 
and that a conference would be “fruitless unless 





15 


you have some proposition to submit for payment 
of your indebtedness.’’ 

April 3, 1928, the General Counsel wrote the 
surety (R. 68,106, Stip., par. 30, Ex. 21) referring 
to the aforementioned letter of October 11, 1922, 
making reference to the collateral held by fhe 
surety; referring to the Treasurer’s reply to that 
letter on October 24, 1922; and advising the surety 
that the audit of the operator’s books had been 
completed, that there then was a balance of $17|5,- 

i 

303.76 due the United States from the operatbr, 
making demand on the surety for that sum, and 
tendering the surety an examination of the details 
of the account at any convenient time. 

No reply having been received from the surdty, 
the General Counsel, on September 27,1928, sent a 
follow up letter to the surety (R. 68, 107, Stip., 
par. 31, Ex. 22). | 

The Secretary of the surety replied to the last 
mentioned letter on October 3, 1928 (R. 68, 69, 
Stip., par. 32, Ex. 23), making no suggestion that 
notice had not been given or received, or that the 
notice given was not timely or sufficient, but ex¬ 
plaining the surety’s own delay by saying that “we 
are making special effort to arrange for a confer¬ 
ence at an early date and in the meantime \idll 

appreciate your further kind indulgence.” 4 j 
————— 

4 The conference referred to was with Mr. Stitt, foriner 
Comptroller of the Company. 






16 


The General Counsel followed the matter up 
with a letter to the surety dated December 4, 1928 
(R. 69,108, Stip., Par. 33, Ex. 24). 

To this, the Secretary of the surety replied in a 
long letter of January 4, 1929 (R. 69, 108, 109, 
Stip., par. 34, Ex. 25). He began by thanking the 
General Counsel for his courtesy in “ permitting 
this matter to lie in abeyance during my frequent 
and unavoidable absences from my office in the last 
few months.” He said that difficulty in getting 
desired information has been encountered, which, 
as he said, was “partly the reason for our delay;” 
that the matter had been taken up with Sigsbee, 
who had cooperated with the surety; that the 
surety had been convinced from the beginning that 
there was no liability on the bond, but that, “to 
avoid the possibility of error”, a very careful in¬ 
vestigation of the whole matter recently had been 
made; that, due to the complications of the case, 
the investigation had been long and tedious; that 
the surety had employed a firm of auditors of wide 
experience in Shipping Board cases, who had re¬ 
viewed, among other things, the statement of 
March 22, 1928, prepared by the General Comp¬ 
troller of the Corporation 5 and “all of Mr. Sigs¬ 
bee ? s files” and had had repeated conferences with 
him “in their endeavor to straighten out the ac¬ 
count”; and that the auditors had advised that 
they thought the operator was not indebted to the 

5 Said statement was the basis of the General Counsel’s 
demand on the surety dated April 3,1928. 



17 


Shipping Board, but believed a considerable s^um 
would be found due the operator “when the [ac¬ 
counts are finally balanced and the agreements are 

properly construed/’ 6 

— 

6 The letter of January 4, 1929 concludes: “Even if tjiese 
auditors should happen to be in error, it should be bprne 
in mind that the bond executed by this Company is onfy a 
strict fidelity bond , and there seems to be no charge (nor 
does it appear that there is any ground for charging ) that 
Sigsbee , Humphrey & Company or any of its agents were 
guilty of fraud , dishonesty , or unfair dealing. If we assume 
for the moment that a balance is due from Sigsbee, Hum¬ 
phrey & Company to the Shipping Board, it has becbme 
due through the voluntary payment by the Shipping Board 
to Sigsbee, Humphrey & Company of a larger aggregate 
sum than should have been paid. The money was apparently 
received by Sigsbee, Humphrey & Company without any 
intent on their part to mulct the Government and without 
any knowledge that the payments were excessive. We under¬ 
stand further that each payment was made only after the 
Shipping Board had carefully examined the statement and 
the facts upon which the payment was based. If our under¬ 
standing in this regard is correct, it seems that any loss 
suffered by the Shipping Board will have been brought 
about through its own acts and cannot be attributed to any 
acts of Sigsbee, Humphrey & Company. In addition, it 
appeal's that the Shipping Board failed to give this Com¬ 
pany the notice required by the bond , and this operated to 
our prejudice. 

“We feel that it would serve no useful purpose to go njiore 
deeply into the matter at this time. It is sufficient to say 
that, after the most careful consideration, this Company is 
constrained to deny liability to the Shipping Board oil its 
bond. This is particularly for the reasons stated above, but 
there are also other reasons almost equally as compelling, 
and we reserve the right to present any and all defenses 
that we may now or hereafter have, in the event there should 
ever be any litigation or further controversy arising out 
of this case.” 



18 


The chief ground of non-liability of the surety 
urged in this letter is that the bond is a “ strict 
fidelity bond”, and “there seems to be no charge 
(nor does it appear there is any ground for charg¬ 
ing) that” the operator “or any of its agents were 
guilty of fraud, dishonesty, or unfair dealing.” 
It is suggested, apparently as an afterthought, 
that the required notice had not been given to the 
surety. While it is said that “this operated to our 
prejudice”, no prejudice is shown; and the omis¬ 
sion of the surety in this letter, or in any pleading 
or elsewhere, to sav that the collateral mentioned 
in the letter of October 11, 1922, had been sur¬ 
rendered, is most significant. If it had been, it is 
a fair inference that the surety would have said so. 

As explanatory of the delay in obtaining such 
evidence of loss as would constitute a proper basis 
for giving notice to the surety attention is invited 
to paragraphs 35, 36, and 37 of the stipulation (R. 
69). In these paragraphs it is stipulated that Ray¬ 
mond F. Tallman, Vaughan T. Harford, and Glenn 
Rose would testify as there set forth. These gentle¬ 
men were employed in various capacities in re¬ 
spect to the auditing and stating of operators’ ac¬ 
counts. They describe the system of accounting 
employed, the vast volume of that work, and the 
difficulties and the delays necessarily encountered. 
An accurate picture of the situation can be had 
only by reading their statements. Mr. Rose worked 
on the account of this operator. Before that work 





19 


was completed, he was transferred to the Gen¬ 
eral Accounting Office, January (not June as the 
stipulation states) 12, 1927. The account was lfeft 
for a year or more just as Mr. Rose had left it 
at the time of his transfer. He was then called 
back and “reviewed and revised my old work pa¬ 
pers, and had the statements typed under date of 
March 22, 1928. This statement was then trans- 
mitted to the Legal Department for handling.” 
The General Counsel gave the surety formal notice 
April 3, 1928, twelve days later (R. 68, 106, Stip., 
par. 30, Ex. 21). j 

December 29, 1936, the District Court made and 

7 7 i 

filed with the clerk a memorandum as follows: 

j 

I think that the requirement of notice con¬ 
tained in the bond is a condition precedent 
of liability; that the loss sustained wasj of 
the character such that notice of loss yras 
required; that notice was not given within 
the time and in the manner required by the 
bond and that there was no waiver by the 
defendant of the notice required by the bond 
(R. 117). | 

January 4,1937, the plaintiff made and filed with 
the clerk its motion for judgment, with plaintiff’s 
requested findings of fact and conclusions of law 
annexed (R. 117-120), wherein, among other 
things, plaintiff excepted to the conclusion of the 
court that the requirement of notice contained in 
the bond is a condition precedent to liability of 
defendant, and to the conclusion that the loss of j the 




18 


The chief ground of non-liability of the surety 
urged in this letter is that the bond is a “ strict 
fidelity bond”, and “there seems to be no charge 
(nor does it appear there is any ground for charg¬ 
ing) that” the operator “or any of its agents were 
guilty of fraud, dishonesty, or unfair dealing.” 
It is suggested, apparently as an afterthought, 
that the required notice had not been given to the 
surety. While it is said that “this operated to our 
prejudice”, no prejudice is shown; and the omis¬ 
sion of the surety in this letter, or in any pleading 
or elsewhere, to sav that the collateral mentioned 
in the letter of October 11, 1922, had been sur¬ 
rendered, is most significant. If it had been, it is 
a fair inference that the surety would have said so. 

As explanatory of the delay in obtaining such 
evidence of loss as would constitute a proper basis 
for giving notice to the surety attention is invited 
to paragraphs 35, 36, and 37 of the stipulation (R. 
69). In these paragraphs it is stipulated that Ray¬ 
mond F. Tallman, Yaughan T. Harford, and Glenn 
Rose would testify as there set forth. These gentle¬ 
men were employed in various capacities in re¬ 
spect to the auditing and stating of operators’ ac¬ 
counts. They describe the system of accounting 
employed, the vast volume of that work, and the 
difficulties and the delays necessarily encountered. 
An accurate picture of the situation can be had 
only by reading their statements. Mr. Rose worked 
on the account of this operator. Before that work 



19 


was completed, he was transferred to the Gen¬ 
eral Accounting Office, January (not June as the 
stipulation states) 12, 1927. The account was left 
for a year or more just as Mr. Rose had left it 
at the time of his transfer. He was then called 
back and “reviewed and revised my old work pa¬ 
pers, and had the statements typed under date of 
March 22, 1928. This statement was then trans¬ 
mitted to the Legal Department for handling.” 
The General Counsel gave the surety formal notice 
April 3, 1928, twelve days later (R. 68, 106, Stip., 
par. 30, Ex. 21). | 

December 29, 1936, the District Court made qud 
filed with the clerk a memorandum as follows: 

i 

I think that the requirement of notice con¬ 
tained in the bond is a condition precedent 
of liability; that the loss sustained was of 
the character such that notice of loss was 
required; that notice was not given within 
the time and in the manner required by jthe 
bond and that there was no waiver by fthe 
defendant of the notice required by the bbnd 
(R. 117). | 

January 4,1937, the plaintiff made and filed With 
the clerk its motion for judgment, with plaintiff’s 
requested findings of fact and conclusions of law 
annexed (R. 117-120), wherein, among other 
things, plaintiff excepted to the conclusion of the 
court that the requirement of notice contained in 
the bond is a condition precedent to liability! of 
defendant, and to the conclusion that the loss of the 





20 


plaintiff was of such character that notice of it to 
defendant was required, and to the finding and 
conclusion that notice was not given to defendant 
within the time required by the bond, and to the 
finding and conclusion that notice was not given in 
the manner required by the bond, and to the find¬ 
ing and conclusion that there was no waiver by the 
defendant of the notice required by the bond; and 
in and by the same motion the plaintiff requested 
thirty-eight specific findings of fact (R. 119, 120) 
which covered only what was embodied in the two 
stipulations of facts and other matter not disputed, 
and two conclusions of law, viz: 

1 . That compliance by the obligee in the 
said bond with the requirement for notice 
contained in the provision of the said bond, 
and reading: 4 ‘upon the discovery by the cor¬ 
poration of any evidence of the loss forming 
the basis of a claim hereunder, the corpora¬ 
tion shall give to the surety, at its home of¬ 
fice, immediate written notice thereof, with 
all available facts, and in any event, within 
thirty days after such discovery * * 
does not constitute a condition precedent to 
liability of the defendant under said bond. 

2 . That due and timely notice as required 
by the said provision of said bond was given 
to and received by the defendant herein. 

January 5,1937, both parties appeared before the 
court. The plaintiff presented and requested the 
court to make findings and conclusions as aforesaid, 
and moved the court for judgment in its favor, all 


21 


of which the court refused and denied; whereuppn 
the plaintiff saved and the court allowed an excep¬ 
tion separately to the refusal of each requested 
finding and each requested conclusion and as to the 
denial of the plaintiff’s motion for judgment; and, 
thereupon, the court made and signed its findings 
and conclusions (R. 121) to all of which the plain¬ 
tiff saved, and the Court, allowed exceptions (jR. 

121 , 122 ). ! 

i 

The Court’s findings and conclusions were, in 
substance, that— 

1 . Compliance by the obligee with the require¬ 
ment for notice constitutes a condition precedent 
to any liability by the defendant; 

2. The defendant has not received the notice re- 

j 

quired within the time prescribed; 

3. There was no waiver by the defendant of the 

notice required; and j 

4. Since the foregoing disposes of the whole <iase 
in favor of the defendant it is entitled to a verdict 

i 

and judgment. ! 


ASSIGNMENT OF ERRORS 

i 

i 

The assignment of errors in the findings, conclu¬ 
sions, rulings, and decisions of the Court w^as filed 
by the plaintiff on February 6, 1937, as follows: 


1 . Error in denying the plaintiff’s motion 
for judgment. 

2. Error in the refusal of plaintiff’s re¬ 


quested conclusion of law numbered 1, 


viz, 


that compliance by the obligee in the fiond 


15416—37 






22 


in suit with the requirement for notice con¬ 
tained in the provision of the said bond, 
reading: 

“Upon the discovery by the Corpora¬ 
tion of any evidence of loss forming the 
basis of the claim hereunder, the Corpora¬ 
tion shall give to the surety, at its home 
office, immediate written notice thereof, with 
all available facts, and in any event, within 
thirtv da vs after such discoverv * * *’*, 

does not constitute a condition precedent to 

liabilitv of the defendant under said bond. 

•/ 

3. Error in the refusal to find and con¬ 
clude that due and timely notice as required 
by the bond involved in this cause was given 
to and received by the defendant. 

4. Error in making its conclusion num¬ 
bered 1, viz, that compliance by the obligee 
in the bond in suit with the requirement as 
contained in said bond, to wit, 

“Upon the discovery by the Corporation 
of any evidence of loss forming the basis of 
the claim hereunder, the Corporation shall 
give to the surety, at its home office, imme¬ 
diate written notice thereof, with all avail¬ 
able facts, and in any event, within thirty 
days after such discovery * * 

constitutes a condition precedent to any lia¬ 
bility of the defendant under the said bond. 

5. Error in finding and concluding that 
the defendant has not received the notice 
required by the bond in suit within the time 
prescribed in the bond. 





23 


6 . Error in finding and concluding that 
there was no waiver bv the defendant of the 

w 

notice required in said bond. 

7. Error in finding and concluding that 

the defendant is entitled to a verdict in its 

favor. | 

8 . Error in finding and concluding that 

the defendant is entitled to judgment in ijts 

favor. | 

9. Error in rendering judgment for the 

defendant. ! 

SUMMARY OF ARGUMENT 

It is submitted that— 

First, the bond in the instant case, construed in 
connection with the underlying agreements be- 
tween the Company and the Corporation, is a per¬ 
formance bond; consequently rules of law that 
compliance with notice of loss provisions contained 
in theft, forgery, and other fidelity bonds is a con¬ 
dition precedent to the insurer's liability, are not 
applicable; ! 

Second, the claim against the surety is admit¬ 
tedly based upon default under certain accounting 
provisions of the bond and no notice is required 
of default under such provisions until after a final 
accounting based upon a final audit; 

Third, that even if the bond could be construed 
to require earlier notice of default under the &c- 
counting provisions, such notice is not a condition 
precedent to recovery upon the bond, but the \re- 


i 


i 






24 


quirement of notice is a covenant, the breach of 
which does not bar recovery but only reduces the 
amount of recovery to the extent to which the 
surety can show that it was damaged thereby; and 
the same rule is equally applicable to notice of de¬ 
fault under the provisions contended by the surety 
to be fidelity provisions; 

Fourth, that due and timely notice was actually 
given by appellant and received by the appellee- 
suretv; and 

Fifth, that the surety waived any notice other 
than the notice actually given to and received by it 
and is, therefore, estopped to deny that this notice 
so given and received complies with the require¬ 
ments of the bond. 

ARGUMENT 

I 

The bond is a “performance” bond and rules of 
laic requiring notice of loss under “fidelity” bonds 
do not control . 

The bond refers to and is conditioned upon the 
performance of an agency contract (Exhibit 3, 
R.15). 

The bond and contract must be read together to 
determine the intent of the parties. 

Tyrer v. Chew, 7 App. D. C. 175; Peake v. 

United States, 16 App. D. C. 415; United 

States to the use of District of Columbia v. 

Bayly, 39 App. D. C. 105. 


25 


A. The contract "requires” a performance bond 

The Contract between the Corporation qnd 
the Company consists of four agreements known as 
M-2, 0-2, MO-3, and MO-4. The surety con¬ 
sented to two extensions of the bond provided ^Eor 
in each of said agreements to cover each new agree¬ 
ment as it superseded the old. There is nothing in 
any of the four agreements relating to the execu¬ 
tion of a bond except as follows: 

M-2 \ 

I 

Eleventh. The Manager shall, at the time 
of execution and delivery of this agreement, 
or at any other time, if so required by 'the 
Corporation, furnish a satisfactory bond[ in 
such amount as The Corporation may order 
for the faithful and proper discharge of the 
obligations and duties hereunder assumed . 

This quotation is from the agreement between 
the Company and the Corporation, dated October 
18, 1919, attached to the declaration as Exhibit 1 
(R. p. 11). | 

0-2 

Tenth. The Operator shall, at the tim^ of 
execution of this agreement, or at any other 
time, if so required by The Corporation, fur¬ 
nish a satisfactory bond in such amount! as 

V 

The Corporation may order for the faitliful 
and proper discharge of the obligations qnd 
duties hereunder assumed . 

This quotation is from the agreement between 
the Company and the Corporation dated October 



26 


18, 1919, attached to the declaration as Exhibit 2 
(R. p. 15). 

MO-3 

The Agent shall, at the time of execution 
and delivery of this agreement, or at any 
other time, if so required by The Corpora¬ 
tion, furnish a bond satisfactory to The 
Corporation in such amount as it may order 
for the faithful and proper discharge of the 
obligations and duties hereunder assumed 
by The Agent. 

This quotation is from the agreement dated 
March 4,1920, between the Company and the Cor¬ 
poration, attached to the declaration as Exhibit 4 
(R. p. 23). 

MO-4 

15—Bond—The Agent agrees, whenever 
required by the Corporation, to furnish a 
bond satisfactory to The Corporation for 
the faithful performance of The Agent’s 
duties and obligations hereunder. 

This quotation is from the agreement dated Feb¬ 
ruary 10,1921, between the Company and the Cor¬ 
poration, attached to the declaration as Exhibit 6 
(R. p. 28). 

Thus it appears that the Company agreed to fur¬ 
nish a performance bond whenever “required” by 
the Corporation. Nowhere is there anything to 
indicate that a fidelity bond was contemplated. 






27 


i 


B. The bond analyzed 

j 

The bond covering the M-2 and 0-2 agreements, 
both dated October 18, 1919, was written Januaiy 
27, 1920. (Attached to declaration as Exhibit s. 
R. p. 15.) The first extension is dated June 7,1920 
(Attached to declaration as Exhibit 5. R. p. 23) 
and covers the MO-3 agreement dated March j 4, 
1920. The second extension is dated June 15,1921 
(Attached to declaration as Exhibit 7. R. p. 29), 
and covers the MO-4 agreement. j 

The defeasance condition of the bond is three 
fold and imposes upon the Company the obliga¬ 
tions to: | 

(a) Save the Corporation harmless 
against acts of fraud, dishonesty, etc. j 

(b) Properly account for, receive, and 
disburse funds described. 

(c) Faithfully account for and turn over 

any moneys, property, or other funds for 
which it mav be accountable. j 

V 1 

I 

The exact language of the bond with respect to 
the obligations imposed under (a) is: J 

j 

Sigsbee Humphrey and Company shall 
well and truly save said Corporation harm¬ 
less against such pecuniary loss as the Cor¬ 
poration shall sustain by any act of fraud, 
dishonesty, forgery, theft, embezzlement, 
wrongful abstraction, or willful misapplica¬ 
tion of any moneys or funds that may come 
into the possession or control of Sigsbee 
Humphrey and Company'during the j life 
and by reason of the agency agreement. 




28 


In view of the extensive coverage provided for 
under the Company’s obligation to render period¬ 
ical as well as final accountings and promptly to 
pay over any moneys or other property for which 
it may be accountable, it must be conceded that the 
so-called fidelity provisions w’ere not intended pri¬ 
marily to cover the acts of the Company nor those 
acts of its employees and sub-agents for which it 
would be accountable in any event. If the provi¬ 
sions of the bond were merelv a reflection of the 
terms of the contract, the fidelity clauses would be 
superfluous. Xo act of the Company, whether 
fraudulent or merely negligent, would be outside 
the coverage of the bond if the fidelitv clauses 
had been entirelv omitted. The same is true of the 
acts of those for whose proper performance of 
their duties the Company would be responsible un¬ 
der well-settled principles of law. But it does not 
follow that the acts of third parties would neces¬ 
sarily involve liability on the part of the Company 
under the accounting provisions. For example, a 
stranger might by forgery secure part of the 
moneys in the fund from the bank in which it had 
been deposited. It would be difficult to predicate 
liability for this loss upon the accounting provi¬ 
sions. But under the so-called fidelity provisions 
this loss is covered under the bond, first, by the 
covenant of the principal to hold the Corporation 
harmless from resulting pecuniary loss, and, 
second, by the obligation of the surety to respond if 






the principal fails to perform this covenant. That 
this construction of the so-called fidelity provisions 
is correct is shown by the fact that: 

(1) In describing the acts of fraud, forg¬ 
ery, etc., covered, the acts are not limited to 
those of the principal, but the bond covers 
any such act of any person whatsoever . 

(2) Liability under the bond arises riot 
because of the acts committed but through 
the principal’s failure to indemnify the Cor¬ 
poration. The bond therefore creates! a 
primary obligation on the principal which 
may be independent of the obligation to ric- 
count, and a corresponding secondary lia- 
bilitv on the suretv. 

*/ At 

It follows, therefore, that the so-called fidelity 
provisions were superimposed upon what, under 
the contract, was intended to be primarily an ac¬ 
counting bond. But it is unjustified to argue 

therefrom that the bond becomes thereby a fidelity 
bond. To adopt the appellee’s contention in tfiis 
respect would result in permitting a wholly sub¬ 
sidiary feature of the bond to override the primary 


intent of the parties as to the purpose and mean¬ 
ing of the bond as such intent is disclosed by the 
underlying agreements and the specific provisions 
of the bond itself. j 

C. Rules of law applicable to this bond 
The general purpose of the contract is full in¬ 
demnity and this should not be defeated except by 
clear and unambiguous limitation. All ambiguities 

15416—37 - 5 


I 







30 


of expression will be construed most favorably to 
the assured. 

Bergholm et al. v. Peoria Life Ins. Co., 
284 U. S. 489; Stipcich v. Ins. Co., 277 U. S. 
311; Mutual Life Ins. Co. v. Hurni, 263 
IT. S. 167; Supreme Council v. N. Y. Fidel¬ 
ity & Casualty Co., 63 Fed. 48; Williams v. 
IT. S. Fidelity Co., 105 Md. 490, 66 At. 495. 

Where the defendant (appellee) is engaged in 
the business of writing contracts of indemnity for 
compensation, the rule of strictissimi juris has no 
application. 

United States to use of District of Colum¬ 
bia v. Bayly, 39 App. D. C. 105; U. S. Fidel¬ 
ity & Guaranty Co. v. United States, 191 
U. S. 416; American Surety Co. v. Pauly, 
170 U. S. 133; Atlantic Trust Co. v. Laurin- 
burg, 163 Fed. 690 (C. C. A. 4th); Guaran¬ 
tee Co. v. Mechanics Bank, supra; Aetna In¬ 
demnity Co. v. J. R. Crowe Coal & Mining 
Co., 154 Fed. 545 (C. C. A. 6th); Supreme 
Council v. N. Y. Fidelity Co. supra. 

Even in cases construing the provisions of fidel¬ 
ity bonds and other forms of insurance contracts, 
if susceptible of two constructions, the one most 
favorable to the assured will be adopted if consist¬ 
ent with the objects for which the contract was 
made. 

Imperial Fire Ins. Co. v. Coos County, 
151 U. S. 452; Thompson v. Phoenix Ins. 
Co ., 136 U. S. 287; Maryland Casualty Co. v. 
First National Bank, 246 Fed. 892 (Cert. 




31 


Denied, 246 IT. S. 670) ; Carstairs et dl\ v. 
American Bonding Co,, 116 Fed. 449 (C&rt. 
Denied, 187 U. S. 644) ; Guarantee Company 
v. Mechanics Bank, 80 Fed. 766 (Rev. other 
grounds, 173 U. S. 582); Colton v. Fidelity 
& Casualty Co,, 41 Fed. 506; Minnesota Mu¬ 
tual Life Ins, Co, v. Marshall, 29 F. (2d) 
977. | 

Forfeitures are not favored by the law and the 
court will be quick to recognize any facts or cir¬ 
cumstances tending to sustain a waiver of a for¬ 
feiture. This is particularly true in insurance 
cases. 

National Benefit Association v. Elsie, 35 
App. D. C. 294. | 

On January 4, 1929, appellee wrote the Corpo¬ 
ration (Exhibit 25, R. p. 108) : 

It should be borne in mind that the bbnd 
executed by this Company is only a strict 
fidelity bond and there seems to be no change 
(nor does it appear that there is any ground 
for charging) that Sigsbee Humphrey £nd 
Company or any of its agents were guilt^ of 
fraud, dishonesty, or unfair dealing. 

The letter from which the above quotation] is 
taken is very long and carefully written. All lia¬ 
bility is denied. Legal defenses, including failure 
to give notice, are set up. It was written mpre 
than six years after the Company inquired of f;he 
Corporation whether there would be any cl^im 
under the bond (Exhibit 16, R. p. 97). Durjng 




32 


that period of time an audit had been made of the 
Company’s accounts with the Corporation, as ap¬ 
pellee was well advised (Exhibit 17, R. p. 98; Exhi¬ 
bit 21, R. p. 106). Also extensive negotiations 
looking towards a possible settlement had been car¬ 
ried on between the Corporation and the Company 
and suit was threatened (Exhibit 20, R. p. 106; 
Exhibit 19, R. p. 102). 

It is a fair inference that this letter was written 
with a view to bolstering up the appellee’s theory 
that the bond should be construed as a fidelity bond 
and that on that hypothesis liability under the 
bond could be avoided by resort to rules of law 
favorable to the apj^ellee which are applicable only 
to fidelity bonds and like insurance contracts and 
which have no application to accounting and other 
performance bonds. But the same letter contains 
an admission that the true nature of the bond in 
suit is that of a performance bond when, in speak¬ 
ing of an alleged failure to give notice, it says that 
“this operated to our prejudice.” Does this not 
clearly show that appellee believed the notice re¬ 
quirement to be a mere covenant and that damages 
must be alleged and proven ? Does that not explain 
appellee’s silence concerning the collateral secu¬ 
rity it held? What has become of that collateral? 
Does appellee still hold it and, having charged and 
presumably collected a $2,000 premium for writing 
the bond (R. p. 17), not to mention further s ums 
for two extensions thereof, at the same time seek 



33 


to evade liability by interposing inapplicable de¬ 
fenses grounded on rules of strict construction that 
have been held to apply only to actions on fidelity 
bonds ? 

I 

D. The accounting provisions of the bond 

Since appellee, in its letter of January 4, 1^29, 
above referred to, admits that there is no change, 
and that it does not appear that there is any ground 
for charges, against the Company or any of its 
agents for fraud, dishonesty, or unfair dealihg; 
and, since appellant bases its claim upon violation 
of the accounting provisions of the defeasance Con¬ 
dition of the bond, it is appropriate for the fo¬ 
ment to examine these provisions as summarized 
in (b) and (c) above. The provisions are: 

(b) Sigsbee Humphrey and Co. * * * 
shall properly account for, receive, and dis¬ 
burse said funds, including the prompt pay¬ 
ment to the said Fleet Corporation of the 
amounts required by the terms of the afore¬ 
said agreement, 

(c) and that at the expiration or earlier 
termination of its position, shall faithfully 
account for and turn over to said United 
States Shipping Board Emergency Fleet 
Corporation any money, property, or other 
funds for which it may be accountable. 

It is obvious that the provision for accounting pre¬ 
ceding the italicized clause relates to an account¬ 
ing during the life of the bond and that the pro¬ 
vision succeeding the underlined clause relates , to 



34 


the final accounting after the bond has expired, or 
been cancelled, or after the agency relationship has 
been terminated. 

This bond was in fact cancelled May 14, 1921 
(Stip. Par. 12 R. 67). The agency relationship 
was terminated September 23, 1921 (Stip. 10 R. 
66). More than one year later, on October 11, 
1922, appellee inquired as to whether there would 
be any claim under the bond (Exhibit 16, R. 97). 
On October 24,1922, appellee was advised that the 
matter of having the accounts audited was being 
taken up with the auditing department of the Cor¬ 
poration and that it would be further advised in 
the near future. Thus appellee well understood 
that the claim under the bond was based upon a 
failure of the Company to faithfully account for 
and turn over money, property or other funds as 
provided in (c) above. As will be shown here¬ 
after, no claim could be predicated upon this pro¬ 
vision without a final accounting based upon a final 
audit, and that it was in contemplation between 
the Corporation and the Company at the time the 
M-2, 0-2, MO-3 and MO-4 agreements were ex¬ 
ecuted, and necessarily contemplated by appellee 
at the time the bond and two extensions thereof 
were executed, that a final accounting based upon 
a final audit must first be had. Furthermore, 
appellee’s conduct as shown by the correspondence 
of October 1922, above referred to, and its letter 
of October 3, 1928 (Exhibit 23, R. 107) is con- 




sistent only with such an understanding between 
the parties. 

There can be no question, therefore, that the 
so-called fidelity provisions of (a) and the ac¬ 
counting provisions during the life of the bond 
under (b) have no application whatever and that 
the claim is strictly limited to the provisions 
of (c). j 

Consequently, if the notice requirement is held 
to apply to (c), there could not possibly be any 
evidence of a loss discovered prior to a final ac¬ 
counting and the Company’s final refusal to pay 
anv balance shown to be owing bv it as a result of 
of such accounting. So far as the record discloses, 
the Company never refused to pay any balance 
asserted to be owing the Corporation. On De¬ 
cember 13, 1922, the General Counsel refers 16 a 
“conference” requested by the Company (Exhibit 
20, R. p. 106). It is quite clear that such a con¬ 
ference could only be held for the purpose of nego¬ 
tiating a settlement. Up to this point there cotild 
be no evidence of a loss. On the contrary, while 
such reports as had been made by the auditbrs 
showed a balance due from the Company, all the 
correspondence between the Corporation and ihe 
Company indicates a continuation of negotiations 
looking towards a settlement until December 13, 
1922. The surety had been notified nearly two 
months earlier not to release its collateral until 
further advised, and that there might be a claim 





36 


under the bond, depending upon an audit of the 
Company’s accounts (Exhibit 16, R. p. 97; Ex¬ 
hibit ?7, R. p. 98). And, as soon as an audit of 
the accounts had been completed, the surety was 
notified of a claim of $175,303.76 (Exhibit 21, R. 
p. 106), which is approximately the amount sued 
for. This was on April 3, 1928. Nearly a year 
elapsed, during which period the surety and the 
Corporation were in correspondence, and the for¬ 
mer was making its own investigation and audit 
with the cooperation of the latter, before it oc¬ 
curred to the former that perhaps it could escape 

liability if it could show it had not received ade- 
* 

quate notice and had been damaged as a result. 
This defense has grown like a snowball until now 
it is urged that it is not necessary to show damage. 

n 

No notice of default is required under the accounting 

provisions of this bond 

The differences between the Corporation and the 
Company arose from the differing interpretations 
that they placed upon various provisions of the 
managing and operating agreements (Exhibit 19, 
R, 102). The bill of particulars attached as Ex¬ 
hibit 8 to the declaration (R. 29, et seq.) contains 
a summary of appellant's claim, in the sum of 
$170,549.79, followed by several detailed schedules 
showing the components of that total. The Fetzer 
memorandum of September 9, 1923 (R. 67, 87 et 




37 


seq., Stip., par. 19, Exhibit 11) shows that 



subjects of controversy, the principal of which was 
as to whether, according to the various managing 
and operating agreements, the Company’s compen¬ 


sation with respect to certain vessels and voyages 
should be ascertained according to the provisions 
of the MO-3 or the provisions of the MOM: agree¬ 
ment, it appearing (R. 89) that, according to the 
one, compensation amounted to $296,828.45; and, 
according to the other, to $126,481.30. The diflfer- 
ence of $170,347.15 is almost exactly the amqunt 


sued for. Exhibit 8 attached to the declaration 


(R. 29) shows that of the total sum now claimed 
$169,438.40 arises out of the controversy ad to 


whether the one or the other agreement controls. 


The Company, insisting on its contention, failed 


to account and settle and the action arose as a re¬ 


sult of its default. 

That being true, the next inquiry is whether^ as 
respects such a claim, the notice provisions of the 


bond have any application. The appellant Con¬ 
tends it has not. 

While the bond requires the giving of notice to 
the surety ‘ 4 upon discovery by the Corporatioh of 
any evidence of loss forming the basis of a claim 
hereunder”, it is susceptible of an interpretation 
that the word “loss” refers solely to the so-called 
fidelity provisions (acts of fraud, dishonesty, ej#.) 
and does not refer to or apply to the further obli¬ 
gation of the Company, at the expiration or earlier 


I 









38 


termination of its position, to account for and turn 
over to the Corporation any moneys, property, or 
other funds for which it may be accountable. To 
bring out this distinction, we quote from the defea¬ 
sance condition of the bond with spacing so ar¬ 
ranged as to emphasize its grammatical construc¬ 
tion and meaning: 

Now, therefore, the condition of this obli¬ 
gation is such that if the above bounden 
Sigsbee, Humphrey & Company shall well 
and truly save the said Corporation harm¬ 
less against such pecuniary loss as the Cor¬ 
poration shall sustain by any act of fraud, 
dishonesty, forgery, theft, embezzlement, 
wrongful abstraction or wilful misapplica¬ 
tion of any money or funds that may come 
into the possession or control of Sigsbee, 
Humphrey & Company during the life and 
by reason of the aforesaid agreement 

and 

shall properly account for, receive, and dis¬ 
burse said funds, including the prompt pay¬ 
ments to the said Fleet Corporation of the 
amounts required by the terms of the afore¬ 
said agreement, 

and at the expiration or earlier termination 
of its position, shall faithfully account for 
and turn over to the said United States 
Shipping Board Emergency Fleet Corpora¬ 
tion, any moneys, property, or other funds 
for which it may be accountable; 
then this obligation shall be void, else to 
remain in full force and effect. 


39 


i 

i 


When the foregoing long compound sentence [is 
split up into its component parts it will be ob¬ 
served that it is composed of three coordinate prin¬ 
cipal clauses, each one of which refers back to the 
opening phrase—“now, therefore, the condition bf 
this obligation is such that if”—and each one is 

j 

completed by the closing phrase—“then this obli¬ 
gation shall be void, else to remain in full force 
and effect.” 

Hence, by its express terms, there are three sets 
of acts for which the bond provides indemnity. 
The bond is to remain in full force and effect if (he 
Company defaults in any one of the three obliga¬ 
tions assumed. 

It will be recalled that in discussing the nature 
of the bond as being primarily a performance bond 
it was pointed out that the so-called fidelity pro¬ 
visions were ancillary to the accounting provisions. 
When this additional coverage was inserted in jthe 
bond it naturally followed that the bond shotild 
contain provisions dealing with the insurer’s right 
to secure from the insured any evidence which fhe 
insured might have of facts which might give fise 
to claims under the so-called fidelity provisions. 
Such provisions were certainly neither customary 
nor necessary in an accounting bond. The dhty 
of the principal in such respect was clear, namely, 
to render proper accountings and pay over [the 
moneys entrusted to it accordingly. The court has 
had sufficient experience with trustees’ and execu¬ 
tors’ bonds, for example, to know that discovery 
of loss clauses are neither necessary nor appro¬ 
priate in this type of bond. The surety is obli- 


40 


gated to see that the principal (be he executor, 
trustee, or agent) accounts and pays over, and 
customarily is bound to see to it, without being ad¬ 
vised with respect thereto by the persons for whose 
benefit the bond is written, that the principal per¬ 
forms these duties, since it is able by mere inquiry 
to determine the extent of the principal’s perform¬ 
ance. But in -fidelity bonds failure to advise the 
surety of the facts underlying an act of fraud or 
dishonesty may seriously prejudice the surety in 
not affording an opportunity to minimize its loss, 
in the loss of subrogation rights, and in further 
losses of the same character. 

It follows, therefore, that considering the pur¬ 
pose and intent of the bond the discovery provisions 
should be construed to apply only to the so-called 
fidelity provisions of the bond and not to the ac¬ 
counting provisions. Since under the present 
state of the record a good cause of action is stated 
under the accounting provisions of the bond, the 
limitation of the discovery requirements to the so- 
called fidelity provisions would necessarily lead to 
the reversal of the decision below. 

Support for the construction of the notice of loss 
provision contended for in this point may be found 
in the language which immediately follows the de¬ 
feasance condition of the bond, namely: 

This bond is given subject to the follow¬ 
ing conditions: 

First: Upon the discovery by the Corpo¬ 
ration of any evidence of loss forming the 


41 


basis of a claim hereunder, the Corporation 
shall give to the Surety, at its Home Office, 
immediate written notice thereof, with all 
available facts, and in any event within 
thirty days after such discovery, and shall 
afford the Surety every reasonable facility 


for investigating the same. 


Payment of 


any such loss shall be made by the Surety 
promptly, after receipt from the Corpora¬ 


tion of satisfactory statement thereof. 


Upon the payment of a loss the Surety shgll 
be subrogated to all of the rights of the Cor¬ 
poration with respect thereto; and the Cor¬ 
poration will execute any and all papers 


reasonably required by the Surety, to effec¬ 


tuate that purpose. 


The word “loss” appears three times in this no¬ 
tice “condition.” It is true that it may be argued 
that in the first sentence “any evidence of loss 
forming the basis of a claim hereunder” may be 
taken to mean any claim under any provision of 
the bond; but the only “loss” that could properly 
form the basis of a claim prior to an accounting is 
a loss under the so-called fidelity provisions. 

i 

Consequently, it would seem that the word “loss” 

i 

as used in this notice “condition” must refer only 
to the so-called fidelity provisions of the defeasance 
condition previously discussed, because that is the 
only place where the word “loss” is employed. 
Confirmation of this conclusion is found in the 


second “Whereas” clause in the bond, where it vyill 
be observed that the Fleet Corporation’s require- 







42 


merit was fot* bond coverage on two separate and 
distinct principles, (a) indemnity against pecuni¬ 
ary loss occasioned by dishonest acts, and (b) in¬ 
demnity against failure to properly account for, 
receive, disburse, and pay over the trust funds. 

Thus, upon reading all the provisions of the bond 
and giving due weight to all its terms, and the in¬ 
tent of the parties as evidenced by their contract, 
the requirement for notice can and should be con¬ 
strued to refer only to acts of dishonesty, and not 
to a default under the accounting provisions. If 
this conclusion is not plainly indicated, at least the 
bond is susceptible of that interpretation. If the 
bond is ambiguous, the construction adopted should 
be the one most favorable to the assured. 

Maryland Casualty Co. v. First National 
Bank, supra. 

Carstairs et ad. v. American Bonding Co., 
supra. 

Guarantee Company v. Mechanics Bank, 
supra. 

Maryland Fidelity Co. v. Colton supra. 

hi 

Notice is not a condition precedent to liability under this 

bond 

Even though it should be held that notice is re¬ 
quired of a default under either the so-called fidel¬ 
ity or the accounting provisions, the requirement 
is not a condition precedent but a covenant, requir¬ 
ing the deduction of loss only to the extent that 



I 


43 

appellee may show damages. The rule is stated in 
28 Corpus Juris, 986, as follows: 

i 

Even in the case of a guarantor entitled 
to notice, there must be not only a want of 
notice within a reasonable time, but also 
some actual loss or damage thereby caused 
to the guarantor; and if such loss or damage 
does not go to the whole of the amount of 
the claim, but is only a part, the guarantor 
is discharged only pro tanto. 

This quotation is approved in New Amsterdam 

i 

Casualty Co . v. TJ. S. Shipping Board, 16 Fed. (£d) 
847 (C. C. A. 4th), which involved a performance 
bond guaranteeing the delivery of materials. It 
was held that the surety was not entitled to notice, 
even though a contract between the obligee add a 
third party required such notice and the contract 
was, by reference, made a part of the bond. 

The bond provides no limitation of time within 
which proof of loss or proof of claim may be filed 
or within which suit may be instituted. Study of 

i 

innumerable cases involving fidelity and indemnity 
bonds and contracts of insurance indicates that it 
is the common practice of the surety to include, 
not only provisions for notice, but also provisions 
for filing claim and proof of loss, and limitations 
of time for such filings and within which suit inay 
be brought, either after the notice is given or the 
proof of loss or proof of claim is filed. Nor does 
the bond provide for giving appellee time to exam¬ 
ine the claim, nor for limitation of time within 







44 


which default may be discovered after the termi¬ 
nation of the bond. 

The failure of the bond to contain any of the pro¬ 
visions enumerated above is highly important be¬ 
cause, in those decisions where a “condition” 
worded somewhat, but not precisely, like the one 
in the instant case has been found to be a condition 
precedent, it has been so found because the “con¬ 
dition” to give notice was tied up with one of the 
other limitations, which would obviously work a 
forfeiture, in such a w*ay that the date of the giv¬ 
ing of notice wras the starting point from which 
the other provisions arose. That was the situation 
in New Amsterdam v. Central National Fire In¬ 
surance Co., 4 Fed. (2d) 203 (C. C. A. 8th). 

In Murray v. American Surety Co., 69 Fed. (2d) 
147 (C. C. A. 6th), a fidelity bond was written 
“subject to the following express conditions.” 
The bond in the instant case omits the wrord “ex¬ 
press.” The Court held that notice w’as a condi¬ 
tion precedent under the language quoted and 
said: 

It is of great importance to the surety to 
get prompt notice of a claim, that investiga¬ 
tion may be made and that the misapplied 
property may be recovered, and that the de¬ 
faulter may be proceeded against. * * * 
If this stipulation were a covenant wrhose 
breach is remediable by the allowance of 
damages, it would seldom be possible to as¬ 
certain what damage would result from not 
giving notice within the time limitation. 






Clearly this reasoning is not applicable to a per¬ 
formance bond. It would certainly have no appli¬ 
cation in this case since the default complained of 
is the failure to render a final accounting and turn 
over monies after the termination of the bond, | 

In National City Bank v. National Surety Co., 
58 Fed. (2d) 7 (C. C. A. 6th), the court held notice 
to be a condition precedent in a fidelity bond “sub¬ 
ject to the following conditions and limitation$.” 
The words “and limitations” do not appear in the 
bond in the instant case. It is difficult to perceive 
how any meaning could be given to such wofds 
other than as a limitation upon liability. 

In American Surety Co. v. Bankers , 67 Fed. 
(2d) 802 (C. C. A. 8th), it was held that notice 
was not a condition precedent to liability iii a 
fidelity bond, even though made so by the terms( of 
the bond. The decision, however, was based u]j)on 
a Nebraska statute, and it was pointed out that} in 
the absence of such statute the decision in St. Louis 
Architectural Iron Co. v. New Amsterdam Cas¬ 
ualty Co., 40 Fd. (2d) 344 (C. C. A. 8th), would 
have been followed, which held that whether or Uot 
a fidelity bond contained a forfeiture provision, a 
condition requiring notice is generally a condition 
precedent. The court also cited Whelan v. West¬ 
ern Assurance Co., 185 Fed. 490 (C. C. A. 2d) j to 
the effect that— ! 

such stipulations in insurance contracts Vol¬ 
untarily entered into have uniformly b0en 



46 


recognized as valid and are intended to 
check speculation as to whether insurer 
would be able to prevent or minimize loss if 
prompt notice had been given. 

This case involved a policy of marine insurance 
which required prompt notice of disaster to a ves¬ 
sel. The Court also cites several cases involving 
policies of accident, fire, and life insurance. 

It should be noted, too, that a condition requir¬ 
ing the filing of proof of loss appears in the bond, 
in addition to the notice, in American Surety Co . v. 
Bankers, supra. 

In Maryland Casualty Co. v. Bank of England, 
2 F. (2d) 793 (C. C. A. Sth), the court held notice 
to be a condition precedent in a fidelity bond 
worded “the following express condition is to be 
deemed a condition precedent to the right to re¬ 
cover. ” How else could the court hold? 

The foregoing are typical of other Federal cases 
holding notice to be a condition precedent such as: 

Imperial Fire Insurance Co. v. Coos 
County, supra; Bergholm v. Peoria Life In¬ 
surance Co., supra; Wachovia Bank & 
Trust Co. v. Independence Indemnity Co., 
37 F. (2d) 550 (C. C. A. 4); Reynolds v. 
Detroit Fid. & Surety Co., 19 F. (2d) 110 
(C. C. A. 6); Commercial Casualty Insur¬ 
ance Co. v. Fruin, 32 F. (2d) 425 (C. C. A. 
8); Guarantee Co. v. Mechanics Bank, 
supra. 

These cases all involve either fidelity bonds or 
policies of insurance and, like those we have com- 


47 



mented upon above, are distinguishable from |he 
instant case either because the language u^ed 

i 

clearly imports a condition precedent or becaiise 
the condition is tied to other conditions, as enu¬ 
merated above, and it is clear that the contracting 
parties so intended. 

In Hurt v. Employers 9 Liability Assurance 
Corp. y Ltd., 122 Fed. 828 (Circuit Court W.ID. 
Kentucky) 7 and Kahnweiler et al. v. Phoenix In¬ 
surance Co., 57 Fed. 562 (Circuit Court D. Kan¬ 
sas) (Rev. other grounds, 67 Fed. 483), the notice 
requirement was held not to be a condition prece¬ 
dent. J 

In Krueger v. St. Louis, St. Charles & Western 
Railroad Company, 185 Mo. 227, the court s^id 
(page 234): j 

An estate upon condition is one which 
has a qualification annexed, by which, on 
the happening of a particular event, it may 
be created, enlarged, or destroyed; * * * 

if it allows the estate to vest, and then to be 

— 

7 It was held, quoting from the syllabus: “* * * that 

whether or not the requirement of notice within 30 days was 
a ‘condition precedent’ within the meaning of the reifiote 
provision relating thereto, the failure to give notice within 
such time did not work a forfeiture of the policy, no iuch 
effect being expressed, while it was so expressed with refer¬ 
ence to the failure to furnish proofs or to begin suit within 
the time specified, and in view of the rules that policies are 
to be construed most strongly against the insurer, by whom 
they were written, and that, where penalties are expressly 
provided for in case of certain defaults, and not in caste of 
others, the omission is to be deemed intentional.” 



48 


defeated in consequence of non-performance 
of the requirement, it is a condition subse¬ 
quent (2 BL Com., ch. 10; 4 Kent’s Com., 
etc: Shep. Touch., ch. 6, “Of a Condition”). 

The author of the Touchstone says: “Con¬ 
ditions annexed to estates are sometimes so 
placed and confounded amongst covenants— 
sometimes so ambiguously drawn—and at 
all times have in the drawing so much affin- 
itv with limitations, that it is hard to discern 
and distinguish them.” 

In Clark v. London Assurance Corporation 
(Nevada), 195 Pacific 809, the Nevada court con¬ 
sidered the effect of the failure to furnish proof 
of loss within sixty days as stipulated in the New 
York Standard Policy. The court pointed out 
that there was no provision in the policy to the 
effect that the insured shall forfeit his rights there¬ 
under in case proof of loss is not rendered within 
sixty days, although it did contemplate forfeiture 
under certain other circumstances. The court 
made an exhaustive review of the authorities and 
said: 

In disposing of this appeal, we deem it 
necessary to consider but one proposition 
of law. It may be said at the outset that 
there are two lines of authority on the ques¬ 
tion of whether or not the failure to make 
proof of loss within the sixtv-dav period 
bars recovery. Judge Van Fleet, in S. F. 
Savinas Union v. Western A. Co .. 157 Fed. 


696 (decided in 1907), said that the courts 
were evenly divided on this point. Since 
that time, in keeping with the progressive 
spirit of the age, the current of authority 
has keen strongly in favor of the rule that 
such a failure is not of itself sufficient to 
deny the right of recovery . j 

The Nevada court further observed “that for¬ 
feitures, as a general proposition, are not favored 
and quoted with approval North B. & M . Insurance 
Co. v. Edmundson, 194 Va. 486, 52 S. E. 350. 8 ; 

A great number of cases from the courts of other 
states were cited and commented upon by the Ne¬ 
vada Court, as well as text writers on insurance. 9 
— 

8 “Where hio forfeiture is provided for in case of failure to 
furnish proofs, forfeitures being stipulated in case of breach 
of other requirements, or furnishing the proofs in the speci¬ 
fied time is not expressly made a condition precedent t6 re¬ 
covery, the great majority of recent decisions hold that! the 
effect of failure to furnish them is merely to postpone! the 
time of payment to the specified time after they ; are 

furnished.' 75 j 

9 Other State decisions to like effect include the following • 

In Continental Fire Insurance Co. v. 'Whitaker , 112 Tenn. 

151, 79 S. W. 119) the doctrine was carried much further. 
The policy in that case provided for notice and proof of; loss 
within sixty days and then provided: 

“No suit or action on this policy for the recovery of |any 
claim shall be sustainable in any court of law or equity, qntil 
after full compliance by the insured with all the foregoing 
requirements, nor unless commenced within twelve months 
after the fire.” 

No forfeiture was provided for in the policy for failure to 
furnish the proofs of loss within sixty days after the fire, 
although there are many other acts referred to in the policy, 



50 


Many other decisions of State courts might be 
cited to support appellant's position. As said by 
the Nevada Court, “in keeping with the progres¬ 
sive spirit of the age, the current of authority" is 
running with appellant. 

The Court’s attention is particularly called to 
the case of Southern Surety Co. v. MacMillan Co., 
58 F. (2d) 541 (10th Circuit) 1932, which, like the 


and omissions also referred to therein, for which forfeitures 
were provided. 

The proofs were not furnished within the specified time. 
The court said: 

“The rule laid down in Joyce on Insurance applicable to 
this state of facts is as follows: Tf a policy of insurance pro¬ 
vides that notice and proofs of loss are to be furnished 
within a certain time after loss has occurred, but does not 
impose a forfeiture for failure to furnish them within the 
time prescribed, and does impose forfeiture for a failure to 
comply with other provisions of the contract, the insured 
may, it is held, maintain an action, though he does not fur¬ 
nish proofs within the time designated, provided he does 
furnish them at some time prior to commencing the action 
upon the policy. And this has been held to be true even 
though the policy provides that no action can be maintained 
until after a full compliance with all the requirements 
thereof.’ 

“We regard this as a sound statement of the law, and 
adopt it. It is supported by numerous authorities.” (Cit¬ 
ing cases from Michigan, Kentucky, Wisconsin, Pennsyl¬ 
vania, Alabama, Virginia, Missouri, and Texas.) 

The same viewpoint as to the requirement to give notice 
was taken by the Florida Court in Hartford Fire Insurance 
Co. v. Redding , 47 Florida, 228; 37 So. 62. The Court said: 

“The provision requiring notice of loss is of the same na¬ 
ture as that requiring proofs of loss, the two are used in the 
same connection in the policy, and while each constitutes a 




51 


i 

I 

instant case, involved the construction of a notice 
requirement in a performance bond guaranteeing 
certain provisions of a contract between the bb- 
ligee and a third party. The contract guaranteed 
was a contract between a book company and the 
obligee as, in the instant case, the contract guar¬ 
anteed is between Sigsbee-Humphrey Co., Iiic., 

condition to the right to sue, and must be performed if hot 
waived before suit can be instituted, it is nowhere provided 
that a failure to perform them within the time specified shall 
release the company from liability or render the policy void. 
There are many provisions in the policy requiring the per¬ 
formance by the insured of stipulations relating to the insur¬ 
ance after as well as before the loss, the nonperformance of 
which it is expressly stated will render the policy void or 
release the company from liability; but no such effect 
is stipulated for failure to give the notive and make the 
proofs within the required time. * * * 

“In Ermentrout v. Girard Fire etc. Ins. Co ., 63 Minn. 395, 
56 Am. St. Rep. 481, 65 X. W. 635, 30 O. R. A. 346, and otfier 
Minnesota cases, it was held that the failure to comply with 
the requirement to give immediate notice was a condition 
precedent to the company’s liability, but in Mason v. St. 
Paul Fire etc. Ins. Co., 82 Minn. 336, 83 Am. St. Rep. 433, 
85 N. W. 13, the previous cases are referred to and the doc¬ 
trine announced that the result stated does not apply to the 
Minnesota standard policy because that policy does not pro¬ 
vide that a failure to give notice or make the proofs within 
the time stated shall invalidate the policy or work a forfei¬ 
ture of the rights of the insured, and that the failure to com¬ 
ply with the requirements within the time stated will simply 
postpone the day of payment. See, also, Peninsular Lqnd 
Tramp, etc. Co. v. Franklin Ins. Co ., 35 W. Va. 666,14 SJ E. 
23T; Coventry Mutual Livestock Ins. Assn. v. Evans , !102 
Pa. St. 281; Hurt v. Employers' Liability Assur. Corp. Ltd., 
of London, England, 122 Fed. 828.” 






52 


and the obligee. The provisions of the contract 
and the bond were in all material elements similar 
to the contract and bond in the instant case. After 
noting that there is a sharp divergence in the 
authorities where the bond expressly provides the 
liability of the Surety is conditioned upon the giv¬ 
ing of notice, and stating that the 10th Circuit 
would follow the 8th in National Surety Co. v. 
Long, 125 F. 887, in such cases, the Court said: 

The divergence in opinion exists in cases 
w’here the agreement to give notice is ex¬ 
pressly made a condition of the liability of 
the surety company, by apt words vised for 
that purpose. No one of the expressions 
customarily used to condition such liability 
is found in this bond; and it is worthy of 
note that one of the contracts, incorporated 
in the bond, did use apt language to create 
a condition. We are therefore confronted 
with a question of construction. Did the 
parties intend that failure to give the no¬ 
tice, as agreed, should automatically termi¬ 
nate all obligation under the bond ? Or did 
they intend that the agreement was a prom¬ 
ise, the breach of which should render the 
plaintiff liable for any damage occasioned 
thereby ? 

In an effort to ascertain the intent of the 
parties to a contract, the language used by 
them should be fairly studied, and terms 
used ought to be taken in their plain, ordi¬ 
nary, and popular sense. This rule is as 



53 


j 

j 

applicable to contracts of insurance as to 
any other contracts. 

i 

And further: | 

In examining the bond, the first thing nq- 
ticed is that it contains “no express provi¬ 
sion in the bond declaring that it shall be 
void if the notice of prior misconduct is npt 
given. 7 7 

I 

The inner quotation is from Judge Lewis’ opin¬ 
ion in U. S. F. & G. Co. v. Hughes, 40 F. (2d) 34 
(10th Circuit). The bond in the Hughes case did, 
however, make such notice an express condition. 

The bond in the instant ease was given subject 
to two “conditions”; “First”, the notice provision, 
and “Secondly”, the cancellation provision. In 
the MacMillan case there were four provisos, one of 
which contained the notice provision and anotheif a 
cancellation provision. The bond in the instant 
case reading “This bond is given subject to the fol¬ 
lowing conditions” would have the same meaning 
if it read “This bond is given provided ” In the 
MacMillan case, the Court said: 

The word “provided” has been indis¬ 
criminately used as an introduction to every 
paragraph of the contract after the bne 
paragraph expressing the condition of the 
above obligation. 

Also, the Court said: 

In this particular case, the third proviso 
cannot be construed as a condition upon jlia- 


i 






bilitv, for it reserves to the defendant a 
right of cancellation; 

so, in the present bond, the second condition can¬ 
not be construed as a condition upon liability, for 
it merely reserves to both parties the right of can¬ 
cellation upon thirty days’ notice. 

Had it been the intention of the parties that the 
notice requirement be a condition precedent they 
might have said so by such language as “This bond 
shall be forfeited” or “This obligation shall be 
void” for failure to give notice or, as in Maryland 
Casualty Co. v. jBank of England, supra, “the fol¬ 
lowing express conditions are to be deemed condi¬ 
tions precedent to the right to recover. ” Asa mat¬ 
ter of fact, two lines above the language ‘ ‘ This bond 
is given subject to the following conditions” ap¬ 
pears “Then this obligation shall be void.” It is 
significant, therefore, that plain language to create 
a condition precedent was not used. As said by the 
Court in the MacMillan case: 

No one of the expressions customarily 
used to condition such liability is found in 
this bond; and it is worthy of note that one 
of the contracts, incorporated in the bond, 
did use apt language to create a condition . 
We are therefore confronted with a question 
of construction; Did the parties intend fail¬ 
ure to give the notice, as agreed, should auto¬ 
matically terminate all obligation under the 
bond? Or did they intend that the agree¬ 
ment was a promise, the breach of which 


55 


should render the plaintiff liable for any 
damage occasioned thereby? 

I 

The Court then said: 

Considering the care with which insur¬ 
ance contracts are drawn, the absence |of 
such a common provision is significant. 

And after considering the paragraphs beginning 
with “provided” and “provided further”, the 
Court quotes the Supreme Court of the United 
States: | 

“It is true that the word 4 proviso’ is an 
appropriate one to constitute a common lpw 
condition in a deed or will, but this is not the 
fixed and invariable meaning attached to it 
by the law in these instruments. On the 
contrary, it gives way to the intent of the 
parties as gathered from an examination, of 
the whole instrument, and has frequently 
been thus explained and applied as express¬ 
ing simply a covenant or limitation i in 
trust.” Stanley v. Colt, 5 Wall. (72 U. &.) 
119,166,18 L. Ed. 502. 

And continues: 

Giving full force to the rule that the wbrd 
“Provided” is more appropriate to a condi¬ 
tion than a covenant, we do not feel that the 
use of the word stops the inquiry into the 
essential question, the intent of the parties 
as disclosed by their contract; even under 
the strongest statement of the rule, courts 
are not foreclosed from examining the en- 





56 


tire contract. In this particular case, the 
third proviso cannot be construed as a con¬ 
dition upon liability, for it reserves to the 
defendant a right of cancellation; and the 
fourth proviso is a limitation upon, and not 
a condition of, liability. In this particular 
contract, the word “provided” has been in¬ 
discriminately used as an introduction to 
every paragraph of the contract after the 
one paragraph expressing “the condition of 
the above obligation.” 

Next the Court turns to the contract itself: 

The contract, the performance of which 
was guaranteed, is expressly made a part of 
the bond. We turn to it to find what was 
the performance guaranteed. We find that 
the book company agreed to place school 
books at every place in the state where they 
might be needed, which means of course in 
practically every hamlet in the state of Okla¬ 
homa. Four times a year it agreed to report 
to the plaintiff the number of books sold by 
every dealer in the state, and the number 
left in his hands, and to do this within 30 
days. If a single dealer failed to report 
promptly the books sold and on hand, the 
book company could not literally comply 
with its agreement. While the book com¬ 
pany guaranteed the payment for all books, 
it was doubtless in the contemplation of the 
parties that it would, as a general rule, 
undertake to collect from its dealers within 
that 30-day period. Some books were sold 


I 


I 


I 


to the state, and getting vouchers through 
state offices is often a slow task. In such ja 
widespread distribution, mechanical errors 
in counts and the like might, and did, re¬ 
quire frequent reconciliations. This is tlje 
background against which this bond w 7 ps 
made. True, the book company agreed to 
report and remit within 30 days; true, the 
plaintiff agreed to notify defendant if tlje 
book company defaulted. But can it be sa}d 
that the parties intended that the boiid 
should stand forfeited if there was a failure 
to notify of a default that, from the cor¬ 
respondence and the stipulation, gave plain¬ 
tiff no suspicion that anything w 7 as wrong? 

And concludes: 

i 

Considering the nature of the details of tljie 
performance guaranteed, the failure to use 
apt w’ords to express an intent that obliga¬ 
tion should cease upon the failure to giye 
notice, the use of words of promise rather 
than of the happening of an event, we do npt 
believe that the parties intended that lia¬ 
bility upon the bond should end with the 
failure to notify, where no prejudice lie- 
sulted from such failure. 

The evidence in this case conclusively demoin- 
strates that the parties must have knowm when tie 
bond w~as signed that many questions concerning 
the interpretation of the contract upon the faithful 
performance of which the bond is conditioned wejre 
certain to arise, and that such questions did arise. 









58 


Certainly to construe the terms of this bond as re¬ 
quiring notice upon each occasion when the parties 
to the contract disagreed as to whether or not each 
of a multitude of individual items in a lengthy trans¬ 
action constituted a default (and the terms of the 
bond must be so construed if notice is to be held a 
condition precedent to liability) is unwarranted by 
the evidence; perverts the intention of the parties, 
and constitutes an arbitrarv construction which 
should not be sustained. 


IY 

Dae notice was given 

In United States F. & G. Co. v. Barber, 70 Fed. 
(2nd) 220 (C. C. A. 6th), it is held that nothing 
short of knoivledge that loss has been or will be 
sustained fixes the date from which time for giving 
notice begins to run on a fidelity bond requiring 
notice of loss within ten days of discovery there¬ 
of. This was the case of an overdraft on a bank. 
The receiver testified that he did not learn that the 
overdraft was going to produce a loss until a cer¬ 
tain date and that notice was given within ten 
days thereafter. The date of discovery of the over¬ 
draft was not important because the financial con¬ 
dition of the maker of the draft was not then 
known. Until it was known that the overdraft 
would produce a loss there was no opportunity to 
give notice. The Court said: 


59 


We do not understand that anything short 
of knowledge that loss has been or will fee 
sustained fixes the critical date from whidh 
time for giving notice begins to run. 

Appellant contends that, even though it should 
be held that notice is required, and that notice is a 
condition precedent, it did actually give notide 

within thirty days from the time it had any etii- 

| 

deuce of a loss forming the basis of a claim; that it 
could not possibly have such evidence of a loks, 
based upon a failure to render a final account, 


until after a final audit. 

In support of this contention we turn first to t^e 
stipulation as to the testimony of Tallman, Hoff ord, 
and Rose (Stip. 35, 36, 37; R. p. 69-73). The fol¬ 
lowing quotation from Mr. Tallman, setting foifth 
the complexities of the accounting system main¬ 
tained by the Corporation and required of its 
agents, will suffice. Further detail may be had 
from the record. Said Mr. Tallman: 

i 

The Accounting Division of the Fleet Cor¬ 
poration during the time of my employment 
comprised the corporation’s general office 
books, records, and accounts with managing 
operators and all other subsidiary books 1 of 
the corporation in connection with the oper¬ 
ation of merchant vessels. The Division 
was charged with the responsibility of keep¬ 
ing books, effecting reconciliations with the 
books of the managing agents in the field, 


tracing for unsubmitted voyage accounts, 


re- 


i 


i 

i 




60 


cording voyage accounts as they came in, 
and referring them to the Auditing Division 
for audit. The books kept by managing 
agents in the field to which I refer were 
styled Control Accounts, 2 and 3, maintained 
by managing operators in conjunction with 
district auditors of the Fleet Corporation, as 
required by managing and operating agree¬ 
ments 1, 2, and MO-3. The district auditors 
reported to the General Comptroller, and 
the material coming from them was worked 
through the General Comptroller of the Fleet 
Corporation to me. I contacted them under 
the direction of the General Comptroller. 
The district auditors were responsible for 
auditing the accounts of managing oper¬ 
ators—gathering them together according to 
the prescribed procedure, setting them up 
properly, and sending them to the general 
office in Washington. Then they came to 
my Division and were recorded merely for 
identification, booked; that is to say, were 
entered as a debt or credit to the proper 
control accounts of the managing operators; 
and then they were referred to the Auditing 
Division for audit. 

A voyage account, depending upon the na¬ 
ture of the voyage, might be a comparatively 
few papers, and again, might be a batch of 
documents a foot thick—it would depend on 
the number of ports touched on the voyage, 
and the activities at those ports. The ac¬ 
count consists of detailed manifests showing 
all revenues accruing to the vessel and the 


disbursements of pay rolls, ship supplies, 
fuel, port expenses and every nature of ex¬ 
pense that would apply to the operation pf 
a vessel. The length of the voyage would 
indicate not only the volume of documents 
but also the complexities that would arise in 
connection with handling the documents, 
translations from foreign languages, cur¬ 
rencies, rates of exchange, and a hundred 
other details. The data for voyage account¬ 
ing would come in piecemeal. It was cus¬ 
tomary for a vessel departing from a United 
States port to send in the first port account¬ 
ing, and then accountings would dribble in 
as the account of each port of call was com¬ 
pleted. These port accounts had to be han¬ 
dled through agents abroad and find their 
way into the home offices of the managing 
agents in the United States, and in turn, 
through the district offices of the Fleet Cor¬ 
poration, to Washington. 

The above quotation presents a fairly accurate 
picture of the accounting problems inherent in the 
agency contract and undoubtedly foreseen and con¬ 
templated by the parties at the time the bond was 
executed. As said in the MacMillan case, “this! is 
the background against which this bond was made!.” 
Against such a background, if a default occfirs 
under the accounting provisions, what fixes the 
“critical date from which notice begins to run:’? 
How else could appellant have “knowledge” tha^; a 
loss “would be sustained” except by an accountihg 



62 


based upon an audit? The requirement of “evi¬ 
dence” of a loss is more exacting than that of 
“knowledge” in U. S. F. & G. Co, v. Barber, supra. 
We mav know manv things of which we have no 
proof. 

The “critical date from which the time of giving 
notice begins to run” must be the date when the 
Corporation had evidence that a loss had been or 
would be sustained. As heretofore pointed out, 
under such a complicated and involved accounting 
system as outlined by Mr. Tallman it was obvious 
that countless disputes would arise over many 
items of debit and credit and it would be unreason¬ 
able to suppose that the parties intended that no¬ 
tice should be given each and every time such a 
dispute might arise. Since the agreement between 
the Corporation and the Company provided for the 
collection of various sums of money by the latter 
for the account of the former, and the payment of 
fees and commissions by the former to the latter, 
a relationship of debtor and creditor existed. As 
long as such a relationship did in fact exist, the 
withholding of funds by the Company as an offset 
against claims for fees and commissions due from 
the Corporation could not be considered a breach 
of contract—at least there could be no evidence of 
a loss. 

In Williams v. U, S. Fidelity & Guaranty Co.,. 
supra, the Court of Appeals of Maryland consid¬ 
ered a fidelity bond, whereby the surety company 



63 


undertook to make good to the employer (a fire iU- 

l 

surance company) to the extent of $10,000, for all 
loss sustained by it of moneys, etc., “in the posses¬ 
sion or custody of the employe (Tuttle) or for tlje 
possession or custody of which he is responsible, 
directly occasioned by larceny or embezzlement bn 
the part of the employe in connection with the du¬ 
ties of his office or position.” The bond further 
provided: | 

j 

This bond being intended only to cover 
such dishonest acts of the employe in con¬ 
nection with the position in the service of 
the employer hereinbefore referred to as 
amount to larceny or embezzlement . ! 

The contention was that the employer, after 
charging Tuttle with his monthly collections and 
crediting him with his commissions and expenses, 
found a net balance of $7,680.69 due as of a cer¬ 
tain date, which he had failed to pay over to his 
employer. It was contended that this amounted 
to larcenv under the New York statute, Tuttle’s 
office being in that State. The evidence showed 
that Tuttle was allowed three months or longer, to 

settle his monthlv debits and that he was entitled 

* 

to charge against the Company’s debits agaipst 
him policy cancellations on which he made refunds. 
The Court said: 

The company by the grant to him of this 
three months’ credit established the rela- 
tion of debtor and creditor between it and. 





64 


him, and authorized him to apply to his 
own use during that time so much of the 
balance charged against him as came to his 
hands, and relied upon his obligation under 
their contract to repay to it a like amount 
at the end of the period for which the credit 
was given. Milwaukee Theater Co . v. Fi¬ 
delity Co 66 N. W. 361, 92 Wis. 412; McEl- 
roy v. People, 202 Ill. 473,66 N. E. 1058. If, 
at the end of the three months, he was unable 
to pay or simply failed to pay what was due, 
that fact without proof of some fraudulent 
disposition of the money animo furandi 
would not have sufficed to convict him of 

larcenv or embezzlement of it. If the com- 
* 

panv had required him to deposit the money 
to its credit and drew upon it as its agent 
and for its use, and thus intrusted him with 
the mere custody or possession of it, and he 
had applied it to his own use, the case would 
have been different. The mere failure to 
pay a debt without compulsion even by one 
having the financial ability to pay it is 
neither larceny nor embezzlement. Tuttle 
neither concealed nor denied the amount of 
the “balance’ 7 prima facie due by him. He 
admitted them, and freely gave the com¬ 
pany’s accountant access to and temporary 
possession of his books of account for ex¬ 
amination, but asserted that his claims 
against the company exceeded his debits. 

The Court had previously said: 

In a number of suits brought on bonds 
which, like the one now before us, by their 



terms limited the liability of the surety to- 
losses by larceny or embezzlement or by disf 
honest acts amounting to those offenses, it 
has been held that proof of a balance due 
from the employe to the employer, and 4 
failure to pay the same when demanded^, 
was not sufficient to bind the surety. Ther^ 
must be proof of dishonest acts of the em^ 
ploye within the contemplation of the bond! 
Fraud and dishonesty are not presumed!. 
They must be proven. Monongahela Coat 
Co. v. Fidelity & Deposit Co., 94 Fed. 738, 
36 C. C. A. 444; Guarantee Co. v. Mech. Sav L 
ings Bank, 100 Fed. 559, 40 C. C. A. 542 ; 
Milwaukee Theatre Co. v. Fidelity, etc., Co\, 
66. N. W. 361, 92 Wis. 412; Reed v. Fidelity 
etc., Co., 42 Atl. 294,189 Pa. St. 596. ! 

In Aetna Indemnity Co. v. J. R. Croxve Coal <& 
Mining Co. (C. C. A. 8th, 154 Fed. 545)< an end- 
ploy er’s liability bond provided that the insured 
should indemnify the employer against fraudulent 
or dishonest acts of the employe amounting to 
embezzlement or larceny, subject to the condition 
that the insurer should be notified in writing of 
any fraudulent or dishonest act on the part of the 
employe wffiich might involve a loss for which the 
company w T as responsible, immediately after the 
occurrence of such act should have come to the 
employer’s knowledge. Held, that the notice re¬ 
quired was one which would charge the employe 
with the commission of a felonv, and hence the 
employer was not bound to give such notice untxL 



66 


it had acquired knowledge sufficient to justify a 
reasonable man in making such a charge. 

While we are not concerned with losses due to 
fraud and dishonesty, since none is charged and 
appellee admits that no such charge is or could 
be made, nevertheless we refer to Citizens Trust 
& Guaranty Co. v. Globe and Rutgers Fire Insur¬ 
ance Co., 229 Fed. (2nd) 26 (C. C. A. 4th). The 
Court, considering a -fidelity bond which limited lia¬ 
bility to such pecuniary loss as may be sustained 
“by reason of fraud or dishonesty of the employee 7 ’ 
and expressly excluded “any loss occasioned by 
accident, mistake, negligence, error of judgment on 
the part of or because of breach of contract by 
employer 77 , said: 

The general rule is that his agent is guilty 
of i fraud or dishonesty when he collects 
money belonging to his principal and uses it 
for his own purposes, or refuses to turn it 
over. But if there be mutual demands, and 
the failure to settle be due to an honest con¬ 
viction of the agent that he has good offsets 
against the balance appearing against him, 
he cannot be said to be acting fraudulenty 
or dishonestly in the mere withholding of 
the balance to the extent of the amount of 
claims by him until the true amount due by 
him be ascertained. 

There were mutual demands between the Corpo¬ 
ration and the Company. And it is undisputed in 
the record that the latter’s failure to account and 

settle was due to an honest conviction that it had 



67 


good offsets against the balance appearing against 
it. On November 13, 1922, Fetzer wrote the Coifi- 
pany that the account would have been settled if 
it had been possible “to reach any understanding 
with you concerning the interpretation of various 
clauses in the MO-3 agreement” (Exhibit 19 R. 
102 ). | 

Even though a dishonest act had been discovered 
by the Corporation there would have been no evi¬ 
dence of loss forming the basis of a claim. If an 
employee of the Company had absconded with 
$100,000.00 it would not follow that the Company 
would not or could not make good the amount ks 
it was obligated to do under its agreement ahd 
under the terms of the bond. Or, if some third 
party had stolen $100,000.00 of the Corporations 
funds from the Company, it would not follow tl^at 
the Company would not or could not make good the 
amount. j 

Just what date does appellee fix as the “critical 
date” when the Corporation first had evidence of a 
loss ? Exactly what day did the thirty days begin 
to run? Does appellee refer to the date of soijne 
particular withdrawal, unauthorized by the agree¬ 
ment, which was never repaid in whole or in paift ? 
If so, then it is charging a dishonest act, which! it 
has disavowed. 

The notice provision requires evidence of a ldss. 
What sort of evidence is contemplated ? Certaiily 
not evidence of a possible loss that might or might 





68 


not be the basis of a claim. Suspicion, or reason¬ 
able ground for suspicion, is not sufficient to start 
the time running. In American Surety Co. v. 
Pauly, 170 U. S. 133,42 L. Ed. 977, the requirement 
of a fidelity bond of a bank officer was that— 

the company shall be notified in writing 
* * * of any act on the part of the em¬ 
ployee which may involve a loss for which 
the company is responsible hereunder, as 
soon as practicable after the occurrence of 
such act shall have come to the knowledge of 
the employer. That any claim made in re¬ 
spect of this bond shall be in writing, ad¬ 
dressed to the company * * * as soon 

as practicable after the discovery of any 
loss for which the company is responsible 
hereunder * * *. 

It was held that it was not sufficient to defeat the 
plaintiff’s right that he 44 may have had suspicions 
of dishonest conduct”; that notice was not required 
4 4 unless the bank had knowledge, not simply sus¬ 
picion of the existence of such facts as would jus¬ 
tify a careful and prudent man in charging another 
with fraud or dishonesty.” 

Clearly the evidence required must have proba¬ 
tive force. The use of the word evidence, which 
as hereinbefore pointed out, is even stronger than 
knowledge, distinguishes the instant case from 
Guarantee Co. v. Mechanics, supra, where notice 
was required by a fidelity bond upon the obligee 
4 ‘becoming aware of” the speculation of a bank 



69 


employee. The Court distinguishes between ttye 
Pauly case, supra, and said: 

It seems to us that the obvious meaniiig 
of “becoming aware”, as used in this bond, 
is “to be informed of”, or, “to be apprised 
of”, or, “to be put on one’s guard in respect 
to”, and that no other meaning is equally 
admissible under the terms of the instru¬ 
ment. These are the definitions of the lexi¬ 
cographers, distinctly deducible from tile 
derivation of the word “aware”, and th^t 
is the sense in which they are here employed. 
It is used in the same sense in the cashieifs 
certificate on the renewals of the teller’s 
bond. 

I 

To be aware is not the same as to have 
knowledge. The bond itself distinguishes 
between the two phrases and uses them as 
not synonymous with each other. And, in 
view of the plain object of the clause, We 
cannot regard the words equivalent to “tie¬ 
coming satisfied”, though perhaps they may 
be to “having reason to believe.” Even 
then these facts would have demanded in¬ 
vestigation or notification, for we think ttie 
bank cannot be heard to say it did not haye 
reason to believe that Schardt was specu¬ 
lating when it took his professions of Re¬ 
pentance as sufficient assurance that he had 
ceased speculating, and turned its back bn 
any independent inquiry or investigation. 
Our understanding of the provision is that 
what the company stipulated for was 
prompt notification of information by the 



70 


bank in regard to speculation or gambling 
on the part of the employe. It was entitled 
to exercise its own judgment on that infor¬ 
mation and bad not agreed to rely on the 
bank’s belief in that regard. It had the 
right to investigate for itself whether the 
bank did so or not. Notification of the 
existence of reason for inquiry was exactly 
what the clause was intended to secure. 
The bank neither investigated nor gave the 
company notice of the information it had, 
and substituted its own judgment as to the 
value of that information for that of the 
company. In our view this conduct on its 
part amounted to a breach of the stipula¬ 
tion (pp. 420-421). 

We have no such situation in the instant case. 
A dispute arose over the interpretation of certain 
provisions of the MO-3 agreement. According to 
Fetzer (Exhibit 19 R. 103) a statement of the ac¬ 
count under one interpretation showed $240,000 
due from the Company and, under the most favor¬ 
able construction, acceding to all the Company’s 
contentions, the account would show an indebted¬ 
ness of “around” $100,000. This was on Novem¬ 
ber 13, 1922, shortly after the surety had been 
notified on October 24,1922, not to release the col¬ 
lateral it held until it was further advised after 
an audit (Exhibits 16, 17 R. pp. 97, 98). When 
the surety was notified, immediately after the 
audit, of a claim of $175,303.76 (Exhibit 21, R. p. 
106) it was not satisfied with the audit and pro- 


71 


i 

i 

i 


ceeded to have one of its own made (Exhibit 25, 
R. p. 108). And what did its own auditors find? 
We quote from appellee’s letter of January 4,1929, 
written in the shadow of expected litigation and 
presumably under the direction and advice 6f 
counsel: j 

They have now advised us that, in th^ir 
opinion, Sigsbee Humphrey & Company are 
not indebted to the Shipping Board in any 
sum whatever in this transaction. On the 
other hand, they believe that a considerable 
sum will be found due to Sigsbee Humphrey 
& Company from the Shipping Board when 
the accounts are finally balanced and the 
agreements are properly construed. Even 
if these auditors should happen to be in 
error * * *. j 

If there was no loss to the Corporation, as appel¬ 
lee contends, how in the name of reason and con¬ 
science could it be required to give notice of evi¬ 
dence of a nonexistent fact? Such evidence would 

j 

amount to less than a suspicion; it would be chimer¬ 
ical. Appellee’s own statement, above quoted, pre¬ 
sents the strongest argument for appellant. Its 
own auditors cannot find a loss, yet it complains be¬ 
cause the Corporation’s auditors spent too mpch 
time in the discovery of e vidence of such a loss upon 
which to predicate notice. Under such a state! of 
facts we submit that, had there been no notice on 
October 24, 1922, the notice of April 3,1928, would 
have been timely if, indeed, not premature. 




72 


Y 

Further notice than that actually given was waived and 
appellee is estopped to deny compliance with the notice 
requirements 

Appellant contends that, even though it be held 
that notice is required, and that notice is a condi¬ 
tion precedent, and that due notice was not in fact 
given, appellee has waived its right to require any 
further notice than that which was actually given 
and is estopped to set it up in defense to the claim. 

Appellee was put on notice October 24,1922, that 
a claim might be asserted, depending upon an audit 
(Exhibit 17,i R. 98). This was in response to ap¬ 
pellee's inquiry of October 11, 1922 (Exhibit 16, 
R. 97), more than one year after the bond had been 
terminated on May 14, 1921. Yet no question of 
notice had been raised up to that time and appellee 
permitted the Corporation to go ahead with an ex¬ 
tensive audit which of necessity required a long 
period of time to complete. Appellee held collat¬ 
eral security against the payment of loss under the 
bond. So far as the record discloses it still holds 
that collateral. It was not concerned about any 
insufficiency of the notice. Upon completion of 
the audit, when notified on April 3, 1928, that a 
claim for $175,303.76 was being made on the bond 
(Exhibit 21, R. 107), exactly six months elapsed be¬ 
fore appellee made any reply whatever (Exhibit 23, 
R. 107), and then on October 3, 1928, only in re¬ 
sponse to another notice dated September 27, 1928 



(Exhibit 22, R. 107). Up to this time appellee said 
nothing whatever about not having received notice, 
nor did it say it had surrendered the collateral it 
had been holding for more than six years. On tl^e 
contrary, the correspondence indicates that appel¬ 
lee was making an independent investigation and 
audit of its own to check the correctness of the 
claim, and asked for “further kind indulgence” on 
October 3, 1928 (Exhibit 23, R. 107). Thr^e 
months more elapsed until, on January 4,1929, ap¬ 
pellee wrote denying all liability and for the fir$t 
time said anything about notice (Exhibit 12^, 
R. 109). This letter was in reply to a further re¬ 
minder dated December 4,1928, from the Corpora¬ 
tion. While the letter states that the failure to 
receive “the notice required by the bond * * * 
operated to our prejudice” no prejudice was or has 
been shown and no mention was or has been made 
of the surrender of the collateral security appellee 

i 

admittedly held. It would indeed be a perversion 
of justice to permit appellee, holding collateral, l[o 
escape all liability by technical objections as to the 
sufficiency of the notice actually given. As was 
said in Atlantic Trust and Deposit Co . v. Town 6f 
Laurinburg, 163 Fed. 690 (C. C. A. 4th) such sure¬ 
ties, without showing injury to themselves, are n^t 
to be “relieved from contracts which they clamor 
to execute.” 

j 

It is to be noted that the letter does not assent 

i 

that no notice whatsoever was given. It merely 







states that the surety failed to receive 4 ‘the notice 
required by the bond.” It is appellant’s conten¬ 
tion that the surety by its conduct waived any 
right to receive any notice beyond that actually 
given. 

In National Benefit Ass’n v. Elzie, 35 App. D. C. 
294, a life insurance case, Mr. Justice Sheppard 
delivered the opinion of the court, and said (p. 
297): 

There was no error in refusing to direct 
a verdict for defendant. The Defendant 
relied on a forfeiture of the benefit through 
failure to comply strictly with the terms of 
the policy. Plaintiff relied on the facts in 
regard to the receipt of the payments and 
the execution of unconditional receipts, as 
amounting to a waiver of the forfeiture. 
Forfeitures are not favored in the law; and 
that courts are always prompt to seize hold 
of any circumstances that indicate an elec¬ 
tion to waive a forfeiture, or an agreement 
to do so on which the party has relied and 
acted. Any agreement, declaration, or 
course of action on the part of an insurance 
company, which leads a party insured hon¬ 
estly to believe that by conforming thereto 
a forfeiture of his policy will not be in¬ 
curred, followed by due conformity on his 
pari, will and ought to estop the company 
from insisting upon the forfeiture, though 
it might be claimed under the express letter 
of the contract . The company is thereby 
estopped from enforcing the forfeiture . 


75 


The representations, declarations, or act$ 
of an agent contrary to the terms of the pol¬ 
icy, of course, will not be sufficient, unless 
sanctioned by the company itself. Union 
Mut . Life Ins. Co. v. Mowry, 96 U. S. 544, 
24 L. Ed. 674. But where the latter has, by 
its coures of action, ratified such declara¬ 
tions, representations, or acts, the case is 
very different. New York L. Ins. Co. v. 
Eggleston, 96 U. S. 572-577, 24 L. Ed. 841- 
843. See also Knickerbocker L. Ins. Co. V. 
Norton , 96 U. S. 234, 24 L. Ed. 689; Globe 
Mut. L. Ins. Co. v. Wolff, 95 U. S. 326-330, 
24 L. Ed. 387-389; Hartford Life Annuity 
Ins. Co. v. Unsell, 144 U. S. 439-449, 36 
Ed. 496-500,12 Sup. Ct. Rep. 671; Supreme 
Lodge, K. P., v. Kalinski, 163 U. S. 289-298, 
41 L. Ed. 163-166, 16 Sup. Ct, Rep. 1047. 

It makes no practical difference whether it is 
held that the appellee waived further notice bf 
loss on the one hand, or whether following the lihe 
of reasoning adopted by Judge Sheppard it is held 
that the appellee, by its conduct, is estopped froin 
denying that the notice actually given complies 
with the “condition” of the bond. The essential 
fact is that the appellee, with knowledge of the 
fact that the accounts of its principal were still in 
dispute and claims against it would probably ari$e, 
accepted without comment the notice actually given 
in 1922 and did nothing until six years thereafter, 
when it finally denied liability entirely, to indicate 
that anything further by way of notice was Re¬ 
quired from the appellant. 


76 


CONCLUSION 

The findings and conclusions of the District 
Court are erroneous because, as we have clearly 
demonstrated, the bond is a performance bond and 
the rules of law applicable to fidelity bonds do not 
control; the claim is founded upon defaults under 
the accounting provisions and, with respect thereto, 
no notice is required until after a final accounting 
based upon a final audit; notice of loss is not a con¬ 
dition precedent to liability; due and timely notice 
was in fact actually given and received; and ap¬ 
pellee waived any further notice and is estopped 
to deny compliance with the notice requirements. 
Therefore it is submitted that the judgment of the 
District Court was erroneous and should be 
reversed. 

Respectfully submitted, 

Sam E. Whitaker, 

1 Assistant Attorney General, 

Leslie C. Garnett, 

United States Attorney, 

H. L. Underwood, 

Assistant United States Attorney, 

Attorneys for Appellant. 

Max O'Rell Truitt, 

General Counsel, United States 
Maritime Commission. 

Paul D. Page, Jr., 

Keith Carlin, 

Of Counsel. 


». S. GOVERNMENT PRINTING OFFICE: 1937 




T7J7 


IN THE _ ^ ! 

Tflarn c«^S ;/1 ■* 

(Hniteb States; Court of Appeals 
for tfce ©Strict of Columbia 


No. 6960 
April Term, 1937 


United States Shipping Board Merchant Fle^bt 
Corporation, to the use of the United States of 
America, 

Appellant, 


The Aetna Casualty & Surety Company, 

a Corporation, 

Appellee. 


APPEAL FROM THE DISTRICT COURT OF T^E 
UNITED STATES FOR THE DISTRICT ^>F 
COLUMBIA. 

BRIEF FOR APPELLEE 


Challen B. Ellis, 

Charles F. Quantrell, 

Attorneys for Appellee . 

_ i 

W. Braxton Dew, 

Bigham, Englar, Jones & 

Houston, 

i 

Ellis, Houghton & Ellis, 

Of Counsel . 


Eynon Printing Co.. Inc.. Washington, D. C. 







INDEX 



Page 


Preliminary Statement . 1 

The Facts . 5 


Argument . 6 

I. Compliance with the Requirement for notice was a 
condition precedent to any right of recovery under 
the bond in suit. 6 


II. The second issue as to -whether the Fleet Corporation 
has given the notice required by the Bond. 

(1) As to w'hat the surety was to receive notice of.. 

The allegations of the Declaration in this regard 
The Bill of Particulars. 

(2) With respect to when the Corporation was obli¬ 

gated to give notice, and when in fact it did 

give notice . 

The claim made for which the notice of April 
1928 was given . 

(a) Considering first the letters written to 

the Agent . 

(b) Considering next the detailed examina¬ 

tion and audit made by the Fleet Cor¬ 
poration at the time when the foregoing 
letters passed between the Fleet Cor¬ 
poration and the Agent. 


17 

18 

19 

20 

i 


22 

23 

j 

23 



III. Answer to contentions set forth in Appellant’s brief.. *55 

(1) (A) With respect to the contention that the 

bond is a “performance bond”. 35 

(B) With respect to appellant’s “analysis of the 

bond” . |37 

(C) As to appellant’s contention about the rules 

of law applicable to this bond. 38 

(D) As to “The Accounting Provisions of the 

Bond”. |41 

(2) As to appellant’s contention that no notice is 

required under the “Accounting” Provisions.... 44 

(3) As to appellant’s contention that notice is not a 

condition precedent. 146 




























Page 

(4) As to the contention of appellant that due justice 


was given . 52 

(5) As to appellant’s contention that notice was 
waived. 54 

Conclusion .. 68 


TABLE OF CASES 

American Surety Co. v. Bankers’ etc., Assn., 59 Fed. 

(2d) 577 ..7,11,32,34,42 

American Surety Co. v. Bankers’ etc., Assn., 67 Fed. 

(2d) 803 . 49 

Bergholm v. Peoria Life Insurance Co., 284 U. S. 489... 7,8 

Commercial Casualty Ins. Co. v. Fruin-Conlon Co., 32 

Fed. (2d) 425. 7 

East and West Ins. Co. v. Fidel, 49 Fed. (2d) 35, 38 ... 39 

Guarantee Company v. Mechanics’ etc. Co., 183 U. S., 

402 .32,38,42 

Imperial Fire Insurance Co. v. Coos County, 151 U. S. 452 7 

Insurance Company v. Wolff, 95 U. S. 326. 54 

Murray v. American Surety Co., 69 Fed. (2d) 

147 .....7,10,47,55,57 

National Benefit Ass’n v. Elzie, 35 App. D. C., 294. 57 

National City Bank v. National Surety Company, 58 

Fed. (2d) 7.7*48,55,57 

New Amsterdam Casualty Co. v. Central National Fire 
Ins. Co., 4 Fed. (2d) 203. 7 

New Amsterdam Casualty Co. v. U. S. Shipping Board, 

16 Fed. (2d) 847. 7,9,46 

Public Warehouses v. Fidelity & Deposit Co., 77 Fed. 

(2d) 831 .7,32,42,43 

Southern Surety Co. v. McMillan, 58 Fed. (2d) 541... .39,50 
Standard Life & Accident Co. v. McNulty, 157 Fed. 224.. 39 

St. Louis Architectural Iron Co. v. New Amsterdam 
Casualty Co., 40 Fed. (2d) 344. 7 

United States v. Bayly, 39 App. D. C., 105. 39 

Wachovia Bank & Trust Co. v. Independence Indemnity 
Co., 37 Fed. (2d) 550. 7 


li 



















IN THE 


tHmteb States Court of Appeals 
for tfje Btstrtct of Columbia 


No. 6960 


United States Shipping Board Merchant Fleet 
Corporation, to the use of the United States of 
America, 

Appellant, 

v. 

| 

The Aetna Casualty & Surety Company, 

a Corporation, 

Appellee. 


APPEAL FROM THE DISTRICT COURT OF THE 
UNITED STATES FOR THE DISTRICT OF 
COLUMBIA. 


BRIEF FOR APPELLEE 


PRELIMINARY STATEMENT 

This appeal is from a judgment of the District 
Court of the United States for the District of Colum¬ 
bia (Mr. Justice Bailey presiding), rendered January 
5, 1937, in favor of the appellee—the surety named in 
a certain bond issued to the predecessor of .the app^l- 


2 


lant, the United States Shipping Board Emergency 
Fleet Corporation (hereinafter referred to as the 
Fleet Corporation), in which bond Sigsbee Humphrey 
& Company, Inc., (hereinafter referred to as the Agent 
or Operator), was the principal. 

The action in which the judgment was rendered 
was at law, wherein the appellant sought to recover 
from the surety $170,549.79 as the loss alleged to have 
been sustained by the Fleet Corporation, by reason 
of the breach by the Agent of certain duties in the 
handling of trust funds, assumed by it in the agency 
contract, the bond having been issued to cover these 
fiduciary duties. 

This judgment was rendered after a trial of two 
special issues, the parties by stipulation, with the 
approval of the Court, having agreed that these spe¬ 
cial issues be heard and adjudicated upon by the 
Court without a jury before the trial of any other 
issues in the cause. 

The issues involved were—(a) as to whether com¬ 
pliance with the provisions contained in the bond, re¬ 
quiring the Fleet Corporation, the obligee therein, to 
notify the surety upon the discovery of evidence of 
loss forming the basis of a claim thereunder was a 
condition precedent, and (b) if so, whether the Fleet 
Corporation had complied therewith (See Stipulation, 
R. p. 65). 

The defendant-appellee, hereinafter referred to as 
the Surety, was the Surety named in the bond in 
question, and Sigsbee, Humphrey & Company, Inc., 
a New York corporation, was the principal named in 
the bond. 

The bond in question is dated January 27, 1920 
(Ex. 3, R. p. 15), and was originally issued in con¬ 
nection with two agreements designated as Forms M2 
and 02 (Exs. 1 and 2, R. pp. 7, 10), made by the 




3 


Fleet Corporation under date of October 18,1919 w^th 
the Operator, whereby the Fleet Corporation 4 m_ 
ployed the Operator as its agent to manage and Op¬ 
erate such vessels as had been or should be assigned 
to it for that purpose by the Fleet Corporation. 

The bond was later extended to cover two addi¬ 
tional agency agreements made by the Fleet Corpora¬ 
tion with the Operator, dated, respectively, March 4, 
1920 and February 10, 1921 (Exs. 4 and 5, B. pp. 20, 
24). | 

The coverage of the bond was limited by its teipns 
to indemnifying the Fleet Corporation for such pecu¬ 
niary loss as it should sustain by reason of the breach 
by the Operator of certain of the latter’s obligations 
in the handling of trust funds, undertaken under f;he 
fiduciary obligations contained in the agency agree¬ 
ments in question. 1 

The loss alleged to have been sustained by the 
Fleet Corporation was $170,549.79. To recover for 
this loss, plaintiff-appellant brought this action at 
law, solely against the surety, predicating its righli to 
a recovery on two grounds: j 

(a) That the Operator had taken and appropriated 
to its own use certain trust funds which it had col¬ 
lected for the Fleet Corporation; and 

(b) That the Operator, by wrongful and willful 
misrepresentations of fact as to the amount of com¬ 
pensation which the Operator had earned under the 
agency contracts, had induced the Fleet Corporation 


1 While in Appellant’s preliminary statement it attempts to define 
the lK>nd as a ‘‘performance” bond, with certain fiduciary features 
superimposed thereon, the fact is, as clearly shown by the analysis 
of that bond at pages 12-17 of this brief, that the bond is solely 
limited in its coverage to the handling of trust fund moneys which 
the Agent held in a fiduciary capacity and does not extend to the 
“performance” of any other obligations assumed by the Agent in 
the agency contracts. 





4 


to pay over to it additional moneys, to which the Op¬ 
erator was not entitled. 2 (R. p. 6) 

After hearing all the facts on the two special is¬ 
sues involved, the Court found and held (R. pp. 59, 
118): 

“I think that the requirement of notice con¬ 
tained in the bond is a condition precedent of lia¬ 
bility; that the loss sustained was of the charac¬ 
ter such that notice of loss was required; that 
notice was not given within the time and in the 
manner required by the bond and that there was 
no waiver by the defendant of the notice required 
by the bond. Bailey, J.” 

In addition to the foregoing, the Court, acting upon 
the submission of a particular issue of fact (in lieu 
of submission to a jury, which was waived by agree¬ 
ment of counsel), made a formal finding of fact as 
follows (R. p. 121): 

“(2) Upon the issue submitted in subpara¬ 
graph (b) of paragraph 1 of the stipulation of 
counsel reading as follows: 

‘(b) Whether, if such compliance is a condi¬ 
tion precedent to such liability, the defendant has 
received the notice thereby required within the 
time in said condition prescribed.’ 
the Court finds as follows: 

The defendant has not received the notice re¬ 
quired in the bond in suit within the time pre¬ 
scribed! in the aforesaid condition of said bond, 
and there was no waiver by the defendant of the 
notice required in said bond.” 


2 While in appellant’s brief it is contended throughout that the 
claim is predicated on the failure to account and not for mis¬ 
appropriation of funds, the specific allegations of the declaration, 
together with appellant’s bill of particulars, demonstrate clearly 
that this claim is predicated on the alleged defaults above enum¬ 
erated. (See part II pages 18-22 of this brief.) 


5 


And on December 29, 1936, after tbe Court bad stated 
that defendant was entitled to a verdict in its fafor 
(R. p. 121), the following entry was made: 

“This cause having been heretofore duly ar¬ 
gued and submitted to the Court, the Court tMs 
day finds for the defendant.” (R., p. 59) 


THE FACTS 

The declaration in this action was filed on October 
22, 1931 (R. p. 1) and the appellant’s pleas thereto 
were filed February 23, 1932 (R. p. 57). j 

The defaults by the Operator for which recovery 
was sought against the Surety were alleged to h^ve 
been committed during 1920 and early in 1921 (isill 
of Particulars, Ex. 8, R. p. 29). 

The Operator terminated its position and eloped 
out the trust fund on December 30, 1921. (R. p. ljL6) 
The first notification given by the Fleet Corpora¬ 
tion to the Surety of the discovery of any evidence of 
loss forming the basis of any claim under the b0nd 
was on April 3, 1928 (Ex. 21, R. 106). j 

The coverage of the bond in suit, the terms of the 
agency contracts and the obligations assumed by ^he 
Operator, for which the bond was given, together ^vith 
the basis of the claim to the $170,549.79, as actually 
made, will be found discussed under part I of ihe 
argument herein. 

The facts pertaining to the time when the Fleet 
Corporation made discovery of evidence of loss 
(which appellee contends was almost six years pifior 
to the notice of April 3, 1928) will be found discussed 
under part II of the argument herein. 


6 


ARGUMENT 

L 

Compliance with the Requirement for Notice Was a 
Condition Precedent to Any Right of Recovery 
Under the Bond in Suit. 

The lower court committed no error in finding that 
compliance with the requirement for notice contained 
in the bond was a condition precedent to the liability 
of the surety on the bond. 

In so finding, the lower court, in the instant case, 
was in accord with the decisions and findings to the 
same effect, in three other cases brought by the Fleet 
Corporation against sureties on bonds involving the 
identical clause and form of bond in suit and involv¬ 
ing, as well, substantially the same character of 
claims as those made here. 1 

This uniform holding by the lower court, is in con¬ 
formity with the rule of law, applicable to bonds and 
clauses of this nature, which is now too well settled 
to permit of serious controversy. This rule is that 
where the requirement for notice is made a condition 
to liability under the bond, the failure of the assured 
to comply therewith, releases the surety from liability 
under the bond. 

The uniformity with which our Federal courts have 
adhered to this rule is exemplified in the following 
decisions of the Circuit Courts of Appeals in the va¬ 
rious circuits and in the decisions of the United States 
Supreme Court as well: 


1 These other cases are: United States of America v. Aetna 
Casualty & Surety Co., Equity No. 55,145. Mr. Chief Justice 
Wheat, February, 1936; United States Shipping Board Merchant 
Fleet Corporation v. American Surety Co., Law No. 77,988. Mr. 
Justice Proctor, August, 1936; and United States v. American 
Surety Co., Equity No. 55,630. Mr. Justice Luhring, July, 1937. 



7 


Murray v. American Surety Company, 69 jP. 
(2d) 147 (Fifth Circuit); 

American Surety Co. v. Bankers etc. Ass’n ., 
59 F. (2d) 577 (Eighth Circuit); 

National City Bank v. National Surety Co., 58 
F. (2d) 7 (Sixth Circuit); 

St. Louis Architectural Iron Co. v. New Am¬ 
sterdam Casualty Co., 40 F. (2d) 344 (Eighth 
Circuit); ! 

Wachovia Bank & Trust Co. v. Independence 
Indemnity Co., 37 F. (2d) 550 (Fourth Cir¬ 
cuit) ; I 

Commercial Casualty Insurance Co. v. Fjruin- 
Conlon Co., 32 F. (2d) 425, (Eighth Circuit); 

New Amsterdam Casualty Co. v. U. S. Shipping 
Board, 16 Fed. (2nd) 847, (Fourth Circuit); 

New Amsterdam Casualty Co. v. Central Na¬ 
tional Fire Insurance Co., 4 F. (2d) ^03 
(Eighth Circuit); i 

Public Warehouses v. Fidelity & Deposit Go., 
77 F. (2d) 831, (Second Circuit); | 

Imperial Fire Insurance Co. v. Coos County, 
151 U. S. 452; 

Bergholm v. Peoria Life Insurance Co., 

U. S. 489. 

For convenience of reference, we quote briefly 
from some of these cases. 

In Imperial Fire Insurance Co. v. Coos County, 
supra, decided more than forty years ago, the United 
States Supreme Court, in passing upon a provision 
for notice as contained in a fire insurance policy, first 
said (at p. 462): 

“ Contracts of insurance are contracts of in¬ 
demnity upon the terms and conditions specified 
in the policy or policies, embodying the agree¬ 
ment of the parties.’’ 

and then, in holding that compliance by the assured 
with these conditions of such contracts was a condi- 





8 


tion precedent to the right of recovery, said (at. p. 
462): 


“The terms of the policy constitute the meas¬ 
ure of the insurer’s liability, and in order to re¬ 
cover, the assured must show himself within those 
terms; and if it appears that the contract has 
been terminated by the violation on the part of 
the assured, of its conditions, then there can be 
no right of recovery. The compliance of the as¬ 
sured with the terms of the contract is a condi¬ 
tion precedent to the right of recovery. If the 
assured has violated, or failed to perform the 
conditions of the contract, and such violation or 
want of performance has not been waived by the 
insurer, then the assured cannot recover. It is 
immaterial to consider the reasons for the con¬ 
ditions or provisions on which the contract is 
made to terminate, or any other provision of the 
policy which has been accepted and agreed upon. 
It is enough that the parties have made certain 
terms, conditions on which their contract shall 
continue or terminate. The courts may not make 
a contract for the parties. Their function and 
duty consist simply in enforcing and carrying 
out the one actually made.” 

In Bergholm v. Peoria Life Insurance Co., supra, 
decided in 1931, the United States Supreme Court, 
after citing the Imperial Fire Insurance Company 
case, supra, in considering the holding in that case, 
that failure to comply with a stipulation, made a con¬ 
dition in the contract, relieved the insurer from lia¬ 
bility thereunder, said (at page 492): 

“Contracts of insurance, like other contracts, 
must be construed according to the terms which 
the parties have used, to be taken and under¬ 
stood, in the absence of ambiguity, in their plain, 
ordinary and popular sense. Imperial Fire Ins. 
Co. v. Coos County, 151 U. S. 452, 462-463. * * * 




9 




And to discharge the insured from the legal con¬ 
sequences of a failure to comply with an expli¬ 
citly stipulated requirement of the policy, con¬ 
stituting a condition precedent to the granting of 
such relief by the insurer, would be to vary tpe 
plain terms of a contract in utter disregard of 
long-settled principles.’ ’ 

In New Amsterdam Casualty Co . v. U. S. Shipping 
Board, supra , the Circuit Court of Appeals for tjie 
Fourth Circuit was considering the application of tips 
rule of law to notice requirements contained in bon&s 
given in connection with a sales contract. In dis¬ 
tinguishing the type of bond which guaranteed pay¬ 
ment or performance of an obligation definitely fixpd 
at the inception of the contract from those of a fidel¬ 
ity or indemnity nature, where liability under the 
bond is not fixed at the inception of the bond but is 
made contingent on the bad faith or breach of con¬ 
tract of the principal which would be exclusively 
within the knowledge of the obligee, the court said, 
referring to the authorities on the subject: 

4 4 They hold that failure to give notice of 4 e “ 
fault in accordance with the terms of a condition 
contained in a fidelity or indemnity bond releases 
the surety from further liability thereunder. 
There can be no question that such is the law 

# ♦ * 99 


In the case last quoted from, the court did not apply 
the rule enunciated because a requirement for no¬ 
tice was not incorporated in the conditions of the bohd 
and because the liability of the surety was not con¬ 
tingent on the bad faith of the principal named in tjie 
bond but was absolute and fixed at the inception pf 
the bond, the bond being one guaranteeing that the 
principal who had agreed to make definite payments 
of the purchase price at certain times would make 



10 


such payments. In this connection the court said 
(p. 851): 

“The bond sued on in this case does not in¬ 
corporate a requirement for notice of default 
among the conditions of the bond. In those cases 
notice of default was provided as a condition of 
liability, doubtless because the liability of the 
surety was contingent upon the bad faith or 
breach of contract of the principal which would 
be exclusively within the knowledge of the ob¬ 
ligee, and, if there was to be a claim of liability, 
the surety desired prompt notice, so that it might 
investigate the circumstances upon which its lia¬ 
bility was to depend. Here the liability of the 
principal was fixed and the bond was given to 
guarantee that it would make payment in accord¬ 
ance therewith. In such case, there was no rea¬ 
son to insert a provision for notice among the 
conditions of liability and, as we have seen, this 
was not done.” 

In Murray v. American Surety Co. of New York , 
supra, where the Circuit Court of Appeals for the 
Fifth Circuit was considering the notice requirement 
as contained in a bond given for the fidelity of a bank 
president, in explaining the purpose of requiring no¬ 
tice from the assured and the reasons for applying 
the rule that failure to comply therewith constituted 
a breach of the condition precedent, the court said 
(p. 148): 

“The bond was in its substance premium-paid 
insurance against loss. Its stipulations are anal¬ 
ogous to those in insurance policies. It is of 
great importance to the surety to get prompt no¬ 
tice of a claim, that investigation may be made 
and that the misapplied property may be recov¬ 
ered, and that the defaulter may be proceeded 
against. The stipulation for notice is here as¬ 
sociated with agreements about time limitation 



for suit and is introduced by the words: ‘This 
bond is subject to the following express condi¬ 
tions.’ The plain meaning is that the liability 
on the bond is conditioned on performance of 
what follows. There is no ambiguity to be re¬ 
solved in favor of the insured. If this stipula¬ 
tion were a covenant whose breach is remediable 
by the allowance of damages, it would seldom lie 
possible to ascertain what damage did result 
from not giving notice within the time limit. Stip¬ 
ulations for notice are common in insurance con¬ 
tracts and are usually enforced literally and as 
conditions.” (Citing cases.) 

In American Surety Co. v. Bankers’ Savings & 
Loan Association, supra , where the Circuit Court pf 
Appeals for the Eighth Circuit was considering ja 
bond for the faithful performance by an employee of 
his duties, the court also pointed out the purpose of 
requiring notice and the importance thereof to the 
surety, and said (at p. 579): 

“In such cases, the purpose of requiring notice 
to defendant, upon the discovery of wrongdoing 
on the part of the principal in the bond is so that 
the insurer, with such knowledge, may promptly 
take such steps as may be possible to prevent 
further losses, or to terminate its liability pn 
the bond, or to obtain reimbursement or further 
security as to liability already incurred.” (Citipg 
cases.) 

| 

The decisions in the remaining cases hereinbefore 
cited, will be found to have adhered to the rule ps 
expressed in the cases quoted from and to have predi¬ 
cated their holdings on substantially the same under¬ 
lying reasons. 

Although we have made a most careful search pf 
the decisions of the Federal courts in the various 
circuits, we have found no decision which has takpn 






12 


a view contrary to that expressed above, where the 
notice requirement was made a condition in the bond, 
and the liability was not definitely fixed at the incep¬ 
tion of the bond but was made contingent on the bad 
faith of the principal. 

Considering next the bond in suit which was in the 
form prepared by the Fleet Corporation and not by 
the surety (Stipulation, R. p. 115, fol. 162), it will be 
observed first, that by clear and unequivocal terms, 
the liability of the surety to indemnify the Fleet Cor¬ 
poration is specifically made conditional upon com¬ 
pliance by the Fleet Corporation with the notice re¬ 
quirement; and second, that this liability to indem¬ 
nify is made contingent on the bad faith of the agent 
named in the bond as principal, since the coverage is 
limited to the breach by the agent of certain duties 
and obligations with respect to the handling, disburse¬ 
ment, accounting for and paying over the trust fund 
moneys of the Fleet Corporation that might come 
into the possession or control of the agent during the 
continuance of its agency, which agency had no def¬ 
inite period of time to run, but presumably was to 
continue until terminated by either party. 

This provision requiring the Fleet Corporation to 
notify the surety of the discovery of any evidence of 
loss, will be found in paragraph designated “First”, 
(R. p. 16) immediately following the words 

“This bdnd is given subject to the following condi¬ 
tions 

and reads as follows: 

“FIRST: Upon the discovery by the Corpora¬ 
tion of any evidence of the loss forming the basis 
of a claim hereunder, the Corporation shall give 
to the Surety, at its Home Office, immediate 
written notice thereof, with all available facts, 
and in any event, within thirty days after such 


13 


discovery, and shall afford the Surety every rea¬ 
sonable facility for investigating the same.” 

Thus we find this requirement specifically made a 
condition in the bond. 

Considering next the contingency under which the 
surety is to indemnify the Fleet Corporation for lo^s, 
we find these contingencies expressed in language 
limited to acts of bad faith with respect to the han¬ 
dling, disbursement and accounting of and paying over 
trust fund paoneys, the property of the Fleet Cor¬ 
poration, which may be committed during the continu¬ 
ance of the management and operation of the vessels 
by the agent. 

This coverage is expressed in the bond in the fal¬ 
lowing language: 

i 

“NOW, THEREFORE, the condition of this 
obligation is such that if the above bound^n 
Sigsbee Humphrey & Company shall well and 
truly save the said Corporation harmless against 
such pecuniary loss as the Corporation shall sus¬ 
tain by any act of fraud, dishonesty, forgery, 
theft, embezzlement or wrongful abstraction or 
willful misapplication of any moneys or fun^is 
that may come into the possession or control of 
Sigsbee Humphrey & Company during the life 
and by reason of the aforesaid agreement, ahd 
shall properly account for, receive and disburse 
said funds, including the prompt payment to tjhe 
said Fleet Corporation of the amounts required 
by the terms of the aforesaid agreement, and at 
the expiration or earlier termination of its posi¬ 
tion, shall faithfully account for and turn over to 
the said United States Shipping Board Emer¬ 
gency Fleet Corporation, any moneys, property 
or other funds for which it may be accountable, 
then this obligation shall be void, else to remain 
in full force and effect.” 



14 


Thus, it will be observed that the loss is specifically 
limited to 

“any moneys or funds coming into the possession 
or control of Sigsbee Humphrey & Company (the 
Agent) during the life and by reason of the afore¬ 
said agreement.” (the agency contracts.) 

and that the undertaking to indemnify for such loss 
is conditioned on such loss arising from— 

(a) any act of fraud, dishonesty, forgery, theft, 
embezzlement, wrongful abstraction or willful 
piisapplication of those moneys; or 

(b) any failure to account for, receive and dis¬ 
burse those moneys, including the prompt pay¬ 
ment to the Fleet Corporation of the amounts 
required by the terms of the aforesaid agree¬ 
ment (the agency contracts); or 

(c) any failure by the agent, at the expiration or 
earlier termination of the agency, to faith¬ 
fully account for and turn over these moneys 
or their substitute to the Fleet Corporation. 
(R. p. 16) 

Appellant seeks to disregard the plain language of 
the bond and to avoid the application of the well- 
settled rule of law to the instant case merely by declar¬ 
ing that the bond here considered is a “performance” 
bond, which appellant says becomes apparent when 
the agency contract and particularly the paragraph 
in the agency contract providing for a bond, is read 
along with the bond. 

As pointed out heretofore, the wording of the bond 
as actually issued was prepared by the Fleet Cor¬ 
poration and not by the surety, and when we look at 
the recital contained in the bond as to the coverage 
required, it is clear that the Fleet Corporation did 
not require a bond covering the performance of the 
entire agency contract, but only one covering the han¬ 
dling, disbursement, accounting for and paying over 



15 


the moneys which might come into the possession 
and control of the agent under that agency contract. 

That this was the purpose of the bond is at onbe 
apparent when we consider the nature of the agency 
contracts and the provisions with respect to the duties 
and obligations assumed by the agent therein. 

The bond in question was originally issued in con¬ 
nection with two contracts, one designated as the 
M2 form and the other as the 02 form (R. pp. 7, 10), 
under which the agent was to manage and operate for 
the Fleet Corporation such vessels as the Fleet Cor¬ 
poration should assign to it for that purpose. Those 
contracts contained many provisions as to the manner 
in which the vessels were to be operated; the duties 
of the agent with respect to planning, equipping apd 
maintaining the vessels; the issuance of bills of lad¬ 
ing; the trades in which the vessels were to operate, 
and the like. 

It will be found by examination of these contracts 
that the only provisions which relate to the question 
of the moneys which are to “come into the possession 
or control” of the agent, or which describe the duties 
and obligations of the agent with respect to thdse 
moneys, are subdivision (g) of paragraph “Thirst” 
of the M2 form of agreement (R. p. 8), and subdivi¬ 
sions E and F of paragraph “Third” of the 02 fopa. 
of the agreement (Rec. p. 12): 

That the Agent shall collect all freights and otfyer 
moneys due to the Fleet Corporation; 

that the Agent shall hold all moneys collected pn 
behalf of the Fleet Corporation and shall deposit 
these moneys as its separate trust fund earmarked 
as Fleet Corporation funds; 

that the Agent shall not mingle these moneys with 
' other moneys owned or held by it; 



16 


and that it shall make frojn such trust funds all 
disbursements to be paid by the Agent for the 
account of the Fleet Corporation in the operation 
of these vessels; 

and that promptly after the dispatch of each 
vessel or at such other time as the Fleet Corpora¬ 
tion may direct, the Agent shall account to the 
Fleet Corporation for the moneys received and 
disbursed. 

We submit that in the light of the nature of these 
contracts and of the specific provisions contained in 
the paragraphs above quoted as to the duties to be 
assumed by the agent with respect to the handling 
and disbursement of these freight revenues (clearly 
characterized as “trust funds” and earmarked as the 
property of the Fleet Corporation), that what the 
Fleet Corporation wanted when it decided actually to 
require a bond and what it actually received, was a 
bond limited in its scope to indemnifying the Fleet 
Corporation for loss which might arise upon the 
happening of the contingencies contemplated and not 
a bond for the performance of the contract as a whole. 

In summary, we submit: 

(1) That it clearly appears, not only from the lan¬ 
guage used in the bond as prepared by the Fleet Cor¬ 
poration but also from the agency contracts, that 
what the Fleet Corporation required and what the 
surety undertook to give to it was an undertaking 
limited in its scope to indemnifying the Fleet Cor¬ 
poration for such loss as it might sustain of such 
of its moneys as might come into the possession or 
control of the agent by reason of the management and 
operation of the vessels during the continuance of 
the contract, and provided that the loss of those 
moneys should be occasioned by the breach of the 






specific duties enumerated in the bond which had bepn 
assumed by the agent in the agency contract ; 

(2) That it is equally clear, that the undertakihg 
to indemnify was specifically conditioned on compli¬ 
ance with the requirement that the Fleet Corpora¬ 
tion notify the surety of the discovery of any evidence 
of such loss immediately or in any event within thirty 
days after such discovery. 

With such notice requirement, made a condition!of 
liability, contained in a bond to indemnify against 
a loss not then certainly known to arise, but purely 
contingent on future bad faith, the general rule of 
law that compliance with a requirement for notice is 
a condition precedent to any right of recovery enun¬ 
ciated in the cases heretofore discussed, clearly ap¬ 
plies. 


n. 


The Second Issue as to Whether the Fleet Corporation 

Has Given the Notice Required by the Bond. 

The lower court committed no error with respect 
to the second of the two issues in finding that the 
loss sustained was of such a character that noijice 
of loss was required, and that such notice was not 
given within the time and in the manner requited 
by the bond. 

In any review of the findings of the lower court 
in this regard, the questions which logically arise 
are:— 

(1) Of what was the surety to receive notice? 

(2) When was the Fleet Corporation obligated 
to give that notice and when did it in fact 
give that notice? 





18 


(1) With Respect to the First Question—as to 
What the Surety Was to Receive Notice of: 

The requirement for notice, which was made a con¬ 
dition of liability under the bond, as stated hereto¬ 
fore, reads as follows: 

“Upon the discovery by the Corporation of any 
evidence of the loss forming the basis of a claim 
hereunder, the Corporation shall give to the 
Surety, at its Home Office, immediate written 
notice thereof, with all available facts, and in 
any event within thirty days after such discovery, 
and shall afford the Surety every reasonable 
facility for investigating the same.” (R. p. 16) 

It will be observed that the notice called for in this 
provision was of “any evidence of loss forming the 
basis of a claim hereunder’’, and “with all avail¬ 
able facts”. 

Appellant, in an attempt to excuse or negative the 
fact that it had delayed for almost six years, in giv¬ 
ing the notice after it made discovery of evidence of 
the loss which really formed the basis for its claim, 
asserts that it “bases its claim upon the violation of 
the accounting provisions of the defeasance condition 
of the bond”, and that it could make no discovery of 
any evidence of loss resulting from this violation until 
a final audit of the agent’s accounts. 

Such contention by the appellant has no basis in 
fact for the specific allegations of the declaration in 
conjunction with the bill of particulars of the claim 
actually made, show clearly that appellant actually 
bases its claim on two primary wrongful acts of the 
agent which required no final audit to enable the 
Fleet Corporation to discover either that they had 
been committed or that a loss had been occasioned 
to the trust fund thereby. 



19 


The primary wrongful acts in question were, first, 
that the agent had wrongfully and willfully with¬ 
drawn from the trust fund specific sums of money and 
appropriated those specific sums to its own use; and 
second, that thereafter, while concealing from the 
Fleet Corporation the fact it had made those specific 
withdrawals, it wrongfully and willfully represented 
facts, known by it to be false, with respect to com¬ 
pensation which it asserted was due, for the purpose 
of inducing, and thereby did induce, the Fleet Cor¬ 
poration to advance additional sums to it as eoln- 
pensation. 

The Allegations of the Declaration in this Regatd 

The specific allegations of the declaration as to these 
primary wrongful acts are as follows: 

“Said Agent * * * did wrongfully and will¬ 
fully withdraw from said moneys and funds, fees, 
commissions and expenses to which said Agent 
and its sub-agents were not entitled; 


did wrongfully and willfully represent faOts, 
known to said agent to be false, and did conceal 
from the plaintiff .material facts covering the 
handling of the said moneys, all for the purpose 
of securing and did thereby secure from the 
plaintiff advances of money and funds belonging 
to the plaintiff, for the purpose of carrying out 
the management and operation of said vessels, 
and for the purpose of paying fees and comnkis- 
sions to said Agent, to which the said Agent was 
not entitled; and said Agent has misapplied and 
wrongfully and fraudulently appropriated fuhds 
belonging to the plaintiff to the use of the United 
States of A merica, for which said Agent was ac¬ 
countable under said operating agreements and 
has failed to account to the plaintiff or to the 
United States of America for such funds.” (RL p. 
6 .) 


■ ■ ■ 




20 


Referring for the moment to the provisions of the 
MO 3 contract, under which contract practically the 
entire claim in this action is made, and looking at 
paragraph 9 (R. p. 21), we find that the only paoneys 
which the agent is authorized to withdraw from the 
trust fund for disbursement are those to be paid by 
the agent for the account of the corporation. This 
clause in this paragraph 9 reads that the agent 

“shall not mingle the same with moneys owned 
or held by the agent, but shall make from such 
fund all disbursements authorized to be paid by 
the Agent for the account of the corporation.” 
(Italics ours.) 

Nowhere in this paragraph 9, or anywhere else in 
the contract, is there any provision authorizing the 
agent to make payment from that trust fund of the 
compensation claimed by it for managing and operat¬ 
ing the vessels. On the contrary, any such authority is 
clearly negatived by the provision in that paragraph 
9 which specifically states that 

“the compensation due the agent shall be paid 
monthly on voucher from the corporation”. (Ital¬ 
ics ours.) 

That the appellant so understood that this provision 
in paragraph 9 did not authorize the agent to take 
any sums from the trust fund for itself and that it 
was these withdrawals by the agent which the appel¬ 
lant characterized as “wrongful” in its declaration, 
is at once apparent from an analysis of its bill of 
particulars. 


The Bill of Particulars 

It will be observed that in Schedule No. 2 of the 
bill (R. p. 31), there is first set up 



21 


Schedule Debit 

3 Amount of unauthorized withdraw¬ 
als from Trust Fund account of com¬ 
missions claimed by the managing 
Operator—withdrawals made prior 
to application for an advance of 
$250,000.00 and without knowledge 
or consent of the United States Ship¬ 
ping Board Merchant Fleet Corpor¬ 
ation .$192,890.59 

and then there is set up the amount which the agent 
is alleged to have obtained from the Fleet Corpora] 
tion on February 19, 1921 by its “wrongful and will] 
fuF false representations as to compensation earned; 
as follows: 

Schedule Debit j 

3 Amount advanced to Sigsbee, Hum¬ 
phrey and Co., Inc., by U. S. S. B. 

M. F. C. on February 19, 1921, by 
reason of excess claims for commis¬ 
sions alleged to have been earned 
under MO-3 Agreement (N. Y. R. 

T. A. PI. 57-AJV N3-942) and with- | 

out disclosure by Managing Opera¬ 
tor of unauthorized withdrawals 
mentioned above .$250,000.00 

Turning now to Schedule No. 3 (R. p. 32) of the 
Bill of Particulars, to which reference is made oppo] 
site the item of $192,890.59 in Schedule No. 2, w^ 
find the appellant itemizes each withdrawal made by 
the agent during 1920, identifying by dates each specific 
withdrawal, with check numbers, and vessels to which 
the withdrawals applied, which total $192,890.59. Theij 
we have appellant asserting in the bill of particulars 
that the withdrawal of the entire $192,890.59 as made 
in 1920 was wrongful, and not that it was only the 



















22 


amount of such withdrawal as exceeded the amount 
earned, which constituted the wrongful withdrawal. 

Clearly, then, what appellant was claiming in its 
declaration and bill of particulars as the basis for 
its claim was the taking of these moneys from the 
trust fund contrary to the express provisions of para¬ 
graph 9 of the MO 3 contract, and characterized in 
the declaration as “wrongful and willful” withdrawals. 

Obviously according to the Bill of Particulars it 
was this taking from this trust fund of the $192,- 
890.59 and the statements made by the agent (con¬ 
cerning these improper withdrawals) which induced 
the Fleet Corporation to advance the $250,000.00 in 
question, which are the primary bases for the claim 
made in this connection under the bond, and not the 
agent’s failure finally to account for the money so 
taken. 

(2) With Respect to When the Corporation Was 
Obligated to Give the Notice, and When in 
Fact It Did Give Notice: 

The notice provision called for notice immediately 
or, in any event, within thirty days after discovery of 
any evidence of loss. 

As we have seen, the loss alleged to have been sus¬ 
tained and for which claim is piade under the bond 
is predicated on certain withdrawals from the trust 
fund and concealment of such withdrawals, inducing 
an advance of $250,000. made by the Fleet Corporation, 
which is alleged to have been made by the Fleet Cor¬ 
poration because of the false and misleading state¬ 
ments of the agent as to the amount of compensation 
due. 

The record as made by the stipulated facts, shows 
that the Fleet Corporation made full discovery in 
1922 of these items of withdrawal, and that although 


23 


it requested the agent to repay the amount of these 
withdrawals and threatened the agent with suit,! it 
had no communication with the surety with respect 
thereto, and certainly gave it no notice of any claim 
until almost six years later, to wit, in April 1928. 

The Claim Made for Which the Notice of April 
1928 Was Given: j 

The record, as made by the stipulated facts, estab¬ 
lishes conclusively that the claim for which notice was 
given in 1928 and for which suit was brought, is the 
same as the claim discovered in 1922. The facts of |the 
claim as now made in no way depended on a final j re¬ 
view and the final review of the accounting would in 
no way change the character of the breach by the 
agent which was one of wrongful abstraction and will¬ 
ful misapplication of trust funds. 

The following is a resume of—(a) the pertinent 
parts of the letters written by the Fleet Corporation 
to the agent calling attention to the fact that the 
Agent had improperly withdrawn moneys from ithe 
trust fund account and demanding that these monbys 
be paid to the Fleet Corporation on pain of the insti¬ 
tution of legal proceedings for their collection; quid 
(b) the detailed examination and audit made by ithe 
Fleet Corporation in 1922 as to the compensation 
and agency fees earned by the agent under the M03 
contract and the amounts improperly withdrawn by 
it which form the basis of the demand for repayment 
and the threat of legal action. 

(a) Considering first the letters written to the 
Agent : 

I 

Exhibit 5 (R. p. 83) shows that prior to April 
1921 the Fleet Corporation had figures in its 
possession indicating that the Agent had obtained an 




24 


overpayment of fees and commissions under the M03 
contract of approximately $50,000.00 and the district 
auditor of the Fleet Corporation in New York had 
been instructed by the general office of the Fleet Cor¬ 
poration at Washington to withhold payment of any 
further compensation due to the Agent under the 
M04 contract, in sufficient amount to protect the Fleet 
Corporation against such overpayment. 

This letter was followed on July 25,1922 by a letter 
from the Assistant Counsel of the Fleet Corporation 
(Mr. Fetzer) to the Agent (Ex. 13, E. p. 94) stating 
that there seemed to remain but the usual course 
to resort to legal procedure to enforce payment of 
the balance due frojn the Agent to the Fleet Corpora¬ 
tion and that he, the Assistant Counsel, felt obliged 
to submit the matter to the Department of Justice for 
appropriate action. 

Then followed a letter dated August 18, 1922 (Ex. 
14, E. p. 96) signed by the Disbursing Officer and the 
Auditor of Eeceipts of the Fleet Corporation ad¬ 
dressed to the Agent in which it is stated that they 
were advised by the General Office at Washington 
that 


‘ 4 prior to the closing out of U. S. Shipping Board 
trust funds deduction were made by your Com¬ 
pany out of Trust Fund Account under your con¬ 
trol of commissions earned by you account of 
operation of TJ. S. Shipping Board vessels in the 
sum of $81,682.59. The General Office have in 
consequence requested that this office make col¬ 
lection of the above amount as such deductions 
were made in violation of TJ . S. Shipping Board 
accounting practice.” (Italics ours.) 

On November 13, 1922, the Assistant Counsel of 
the Fleet Corporation again wrote to the Agent (Ex. 
19, E. p. 102) a letter in which he refers to the 





25 


fact that he has had a statement prepared for the 
purpose of commencing suit against the Agent j for 
the moneys owed by Agent to the Fleet Corporation 
under the M03 contract. This statement, he says, 
shows that the Agent owes the Fleet Corporation $240,- 
000.00 and be concludes this record by saying 

“ Under the most favorable construction 1 6 be 
placed upon this contract, according to all of your 
own contentions, the account will shotv you in¬ 
debted to the Board for around $1OO,6OO.0O. ,, 
(Italics ours.) 

Manifestly, if on the most favorable construction 
placed by the Agent on the provisions in the con¬ 
tract for compensation the Fleet Corporation had dis¬ 
covered that there was due to it from the Agent for 
the amounts improperly withdrawn a sum around 
$ 100 , 000 . 00 , it would require no final review of j the 
audit to determine that there had been a loss to j this 
extent at least. 

That the statements jnade in this letter last above 
referred to were based on a careful examination of the 
Agent’s accounts and analysis of the M03 contract 
clearly appears from the report made to the Assistant 
Counsel by D. S. Morrison, Assistant to the Director 
of Finance of the Fleet Corporation under dalie of 
October 26,1922 (Ex. 18, R. p. 98). This memorandum 
will be found discussed in our comment of the detailed 
examination made by the Fleet Corporation under the 
next sub-heading. 

On November 25, 1922 the Fleet Corporation, bV the 
Chairman of its Board, Mr. A. D. Lasker, wrote tb the 
Agent (Ex. 19%, R. p. 106) stating that he had made 
inquiries and found that the account of the 4gent 
had been considered by several departments of the 
Fleet Corporation and was now before the Law De- 


26 


partment with a recommendation that suit he insti¬ 
tuted. 

This letter is followed by a letter dated December 
13, 1922 from S. H. E. Freund, General Counsel of 
the Fleet Corporation, to the Agent (Ex. 20, R. p. 
106). In this letter he states that he, too, had exam¬ 
ined carefully the reports of the Fleet Corporation 
Auditors and of the Assistant Counsel, and that he 
concurs in their conclusion that the account seems to 
indicate that the Agent is indebted in the sum of 
$291,172.66, and he states further that any further 
conference would be fruitless unless the Agent has 
a proposition to submit for payment of its indebted¬ 
ness. 

The Record discloses no further communications be¬ 
tween the Fleet Corporation and the Agent after De¬ 
cember 13,1922. However, more than five years later, 
the Fleet Corporation notified the surety for the first 
time that it was making claim under the bond for 
$175,303.76. 

(b) Considering next the detailed examination and 
audit made by the Fleet Corporation at the time 
ivhen the foregoing letters passed between the Fleet 
Corporation and the Agent : 

Apparently a statement or .memorandum was pre¬ 
pared by Mr. Fetzer, Assistant Counsel of the Fleet 
Corporation, as a result of his conference with D. S. 
Morrison, Assistant to Director of Finance of Fleet 
Corporation held on September 28, 1922, for this 
memorandum is referred to in Mr. Morrison’s report. 

The first memorandum in the Record (Ex. 18, R. 
p. 98) was apparently prepared to show the amount 
due from the Agent to the Fleet Corporation and for 
the purpose of commencing the suit referred to in 
Fetzer’s letters and in the letter of the Chairman of 


27 


the Fleet Corporation to the Agent under date of 
November 25, 1922 (Ex. 19V2, R. P- 106). j 

This memorandum (Ex. 18, R. p. 98), dated October 
26, 1922, is from D. S. Morrison to Mr. Fetzer, the 
Assistant Counsel, and shows that Mr. Morrison aijid 
Mr. Steinmetz (Field Auditor of the Fleet Corpora¬ 
tion) made a careful audit and computation as to the 
compensation to which the Agent was entitled under 
the M03 contract and what it had actually takbn 
from the Trust Fund and concludes with the follow¬ 
ing (R. p. 101): | 

i 

“It must also be. borne in mind that Sigsbbe, 
Humphrey & Company have received on account 
of the compensation due them under the M03 
Agreement approximately $301,000. This is made 
up of the payment on account of $250,000 and 
approximately $51,000 in addition, which wias 
withdrawn from the trust fund by that Com¬ 
pany. ’ ’ 

(He then adds that Mr. Steinmetz was makihg 
a complete audit of all the accounts of Sigsbee 
Humphrey & Co. under the M02 and M04 agree¬ 
ments. This account also is shown in the record 
and was completed at least by November 1922.) j 

It will be observed that the $301,000 referred to in 
this paragraph, he stated was made up of “the payment 
on account of $250,000 and approximately $51,000 in 
addition, which was withdrawn from the trust funk” 
by the Agent. 

To this report is annexed a statement (Ex. 18A, 
R. p. 101) showing the compensation earned, calculated 
in accordance with various legal interpretations of the 
M03 contract. This is followed by a report dated 
November 8, 1922 (Ex. 19A, R. p. 103) made by Mr. 
Steinmetz, the Field Auditor, to which report is ap¬ 
pended a further statement (R. pp. 104-5) showing 
the amounts withdrawn from the trust fund by the 
Agent for its own use under the M03 contract. 


28 


It should be noted at this point that by paragraph 
29 of the Stipulation of Facts (R. p. 68) the $291,- 
172.66 referred to in the letter from S. H. E. Freund, 
General Counsel of the Fleet Corporation to the Agent 
(Ex. 20, R. pi 106) as the amount of the indebtedness 
due from the Agent to the Fleet Corporation, had been 
ascertained as such amount as the result of the cal¬ 
culations made from these statements, Exhibit 19A 
and Exhibit 18A above discussed. 

A comparison of the items set forth in Schedules 
1, 2, 3 and 4 of appellant’s bill of particulars (R. pp. 
30-33) on which this action is predicated, with the 
itejns set forth in Exhibit 19A (R. pp. 104-5) on which 
the Fleet Corporation made its claim and demand on 
the Agent in 1922 discloses— 

(a) that the claims made in the bill of particulars 
of November, 1931, for improper withdrawal of moneys 
by the agent are for the identical withdrawals from 
the trust fund as set forth in Exhibit 19A, of No¬ 
vember 8, 1922, identified in each statement by the 
same dates, the same separate amounts and the same 
vessels and voyages; 1 and 

(b) that the refund of $120,000 as set forth in Sched¬ 
ule 2 of the bill of particulars (R. p. 31) as having 
been made on March 7, 1921, is also set forth in 
Exhibit 19A (R. p. 104) and is made up in the latter 
statement by the several amounts identified by the 
date, March 7, 1921, totalling $120,000. 

Thus, to Summarize, the comparison of these two 


1 For example: On page 32 of the record is shown the statement 
in the Bill of Particulars setting forth the amount of unauthorized 
withdrawals from the trust fund by Sigsbee Humphrey & Company 
and at page 104 and 105 there is shown the statement of the with¬ 
drawals from the trust fund which were known and reported in 
1922. The statement of the Bill of Particulars consists of sixteen 
items of withdrawal, with dates check numbers and vessels given. 





30 


In the face of the evidence and the facts revealed 
by this comparison of the bill of particulars with the 
earlier documents of 1922, how can appellant possibly 
contend that it did not have evidence and had not 
made discovery until 1928 of the items of claim now 
being made in this action? 

Appellant Seems now to take the position that not¬ 
withstanding the notice clause, the Fleet Corpora¬ 
tion could ignore any knowledge it had of the breach 
of duty by the agent and instead, defer giving any 
notice until it decided it had, after again and again re¬ 
viewing and rechecking, reached what it elected to 
call a final account of the agent, on some theory that 
the bond was merely a bond for final accounting. 

It is apparent that appellant is confusing the obli¬ 
gation to notify the surety of its discovery, on the 
one hand, with its right to recover against the surety 
in a law suit for a net loss ultimately sustained, on 
the other hand. The obligation to notify accrues im¬ 
mediately upon the discovery by the Fleet Corporation 
of any evidence that the agent had breached its duties 
with respect to the trust fund moneys. Such evidence 
appears as soon as the trust fund moneys have been 
improperly taken from the trust fund and appropriated 
by the agent to its own use, and the Fleet Corpora¬ 
tion learns of it. 

Upon the theory advanced by appellant, if carried 
to its ultimate conclusion, the Fleet Corporation, not¬ 
withstanding it may have made full discovery of evi¬ 
dence showing that the agent had made improper 
withdrawals from the trust fund and had appropriated 
the moneys so taken to its own use, and thus had 
clearly violated its duty with respect to the handling 
of those trust funds, nevertheless, can refrain from 
giving any notice thereof, until, in its own time and 
in its own way, it finally concluded that it could piake 


31 


no recovery and, accordingly, would have recourse 
against the surety. 

Clearly, any such conclusion, and it is the onl^ 
ultimate conclusion which may be drawn from appel¬ 
lant’s contention, would certainly not only be con¬ 
trary to the purpose and intent with which the notide 
clause in question was inserted in the bond, but also 
contrary, as shown by the cases heretofore discussed, 
to any reasonable interpretation of the duties imposed 
upon an assured with respect to complying with the 
requirement for notice in bonds covering the handling 
of trust funds. 

Moreover, it is clear that in any event, the obliga¬ 
tion to notify the surety immediately (or within thirty 
days after discovery) could not be affected in the 
instant case by the question whether recovery in the 
action is sought on the theory of a failure finally to 
account or on the theory of misappropriation and 
wrongful taking, for in the instant case, as has bedn 
clearly shown, the Fleet Corporation had made fiill 
discovery in 1922 of the specific items of loss as it 
now makes claim for in this action and obviously if 
those items are the basis of its claim it was required 
to give notice upon the discovery of evidence thereof. 

That the duty of the assured was to notify the surety 
promptly upon the discovery of any evidence of the 
breach and the loss resulting therefrom, and not later 
on when the assured determined, at its own conven¬ 
ience and in its own time, that it would not be able 
to recoup the loss, and that the performance of such 
duty cannot be excused on any theory that its informa¬ 
tion was not full and complete, are clearly shown hy 
the language used in the opinions in the cases here¬ 
tofore cited. 

For convenience of reference, we again refer to the 



32 


apt language used in some of these cases on this partic¬ 
ular point. 

In American Surety Company v. Bankers etc. 
Ass’n., supra, the Court, in speaking of this duty of 
the assured to notify the surety when it made dis¬ 
covery of evidence of wrongful acts, said (at p. 579): 

“In this case, on October 22, 1924, plaintiff had 
before it the note of $4,201.95, taken from Touzalin 
the day before to cover his peculations of a com¬ 
paratively recent period. It knew of the rather 
extraordinary discovery of the note of January 
27, 1921, almost immediately thereafter. It knew 
all the circumstances hereinbefore detailed in con¬ 
nection with the giving of the one note and the 
discovery of the other. These circumstances 
amounted to far more than mere suspicion as to 
the wrongdoing of Touzalin in connection with 
the amount represented by the larger note. They 
proclaimed his corrupt dealings in that behalf 
and, without question, brought plaintiff fully 
within the rule which required it to give notice 
to the defendant. In this case, the delay of the 
plaintiff in giving the notice was quite unusually 
prolonged, and the justification urged, namely, the 
delay of the state banking department, is quite 
insufficient. Any competent accountant could have 
furnished the information long before the same 
was, or could have been, available from the State 
authorities. No such detailed information, how¬ 
ever, was necessary to fix upon plaintiff the duty 
of giving prompt notice to defendant.” 

In the instant case the accountants had furnished 
detailed information in 1922 of the very items of claim 
for which recovery is sought in this action. 

In Public Warehouses v. Fidelity & Deposit Co., 
supra, Circuit Judge Manton, in the Second Circuit, 
in holding that the record showed that the assured 
had sufficient evidence of loss to require it to give 
notice, said at page 832: 





33 


“The court not only permitted the jury to p^ss 
upon the admitted fact as to the date of ascertain¬ 
ment of defaults, but charged the jury that the 
time for filing proof of loss did not begin until 
the employers had obtained detailed information 
about the default. This was error. The condi¬ 
tion of the bond clearly required proof of losses 
“within 30 days after discovery as aforesaid, of 
any default causing a loss.” Not 30 days after 
discovery of sufficient details of any default ito 
entitle the employer to swear to a claim basied 
on the default. The courts may not change the 
terms of the contract. Imperial Fire Ins. Co .j v. 
Coos County, 151 U. S. 452. To say that the 
30-day period did not begin to run until the 
assured had discovered the details of the loss 
would allow the insured to delay the investiga¬ 
tion and to file a claim at his own convenience. 
The appellant was entitled to make its investiga¬ 
tion and have notice of loss so as to have tipie 
to do so at the earliest possible moment after 
default. Moreover, if the appellees needed mbre 
than 30 days to ascertain the details or the amount 
of the loss, they could have filed their claim within 
the 30 days, with the reservation to submit further 
items or details later. Apparently there was ho 
restriction on this course of procedure, but th^re 
was a required condition that within the 30 d^ys 
notice of the claim be served. This submission Ito 
the jury allowed them to say that appellees in¬ 
quired 85 days to obtain detailed information. 
This was not permissible by the agreement of the 
parties.” 


In Guarantee Co. v. Meclianic$ } etc., Co., 183 U. jS. 
402, after interpreting the phrases used in the boifd, 
the Supreme Court said, at p. 420: 

“Our understanding of the provision is that what 
the company stipulated for was prompt notifica¬ 
tion of information by the bank in regard ito 
speculation or gambling on the part of the exn- 






34 


ploye. It was entitled to exercise its own judg¬ 
ment on that information and had not agreed to 
rely on the bank’s belief in that regard. It had 
the right to investigate for itself whether the bank 
did so or not. Notification of the existence of rea¬ 
son for inquiry was exactly what the clause was 
intended to secure. The bank neither investigated 
nor gave the company notice of the information 
it had, and substituted its own judgment as to 
the value of that information for that of the com¬ 
pany. In our view this conduct on its part 
amounted to a breach of the stipulation.” 

In holding that any delay in giving such notice after 
such discovery cannot be justified on the ground that 
the assured did not have detailed information as to 
the losses sustained, the Court, in American Surety 
Company v. Bankers Etc., Ass 7 n., supra, said (at p. 
579): 

“Delay in the giving of such notice cannot be 
justified by the claim that the obligee in the bond 
did not have detailed information as to the losses 
which it had sustained. If that were the rule, 
the surety might be kept long in the dark while 
wrongdoing, without check, was being allowed 
to go on. During such time, its liability might be 
increasing by leaps and bounds. This would not 
do. Ordinary fairness, under the terms of such 
a bond, requires that, when the obligee has reason¬ 
able grounds for believing that the terms of the 
bond have been violated, and that loss has been 
sustained, it should give prompt notice to the 
surety to the end that the latter may take steps 
to protect its rights. (Citing Cases.)” 

That the Fleet Corporation, in the instant case, not 
only had reasonable grounds in the year 1922 for 
believing that the agent had committed a breach of 
its duty with respect to the handling of these trust 
fund moneys in the manner claimed in this case, but 
also had actual evidence complete in every detail 




35 


appears clearly in the letters passing between the FlOet 
Corporation and the agent in 1922, and in the memo¬ 
randa prepared by the Fleet Corporation during tiat 
year, hereinbefore discussed. 

It follows from the foregoing that as the Fleet Cor¬ 
poration was required to give notice of the discovery 
of any evidence of the loss forcing the basis of jits 
claim under the bond, and to give that notice imme¬ 
diately or in any event within thirty days after such 
discovery; and as it clearly appears that it made 
full discovery in 1922 of the evidence of loss upon 
which it now bases its claim and did not give notice 
thereof until 1928, the lower court committed no erifor 
in finding that the notice was not given in the manner 
and within the time required by the bond. 

m 


Answer to Contentions Set Forth in Appellant’s Brief 

1 (A) With Respect to the Contention that the Bond 
Is a “Performance Bond”. 


At pages 24 to 26, of appellant’s brief, counsel ^ot 
appellant argue that the operating contracts required 
a “performance bond”, and, therefore, the bond ac¬ 
tually given must necessarily be a ‘ 1 performance 
bond”. 

In both the premise and conclusion counsel for ap¬ 
pellant are mistaken. As hereinbefore pointed out, the 
contracts, (the M202, M03 M04) show that in every 
instance the Fleet Corporation reserved the right, if 
it saw fit, to require the agent or operator to furnish 
a satisfactory‘bond for the proper discharge of <jh® 
various obligations and duties provided in the con¬ 
tract, but, as the bond shows, the Fleet Corporation 
did not so require, but instead required a bond w}th 
respect only to those obligations which were cbn- 



36 


cerned with the proper handling and application of 
certain trust funds, the handling and application of 
which were specifically and carefully provided for in 
the contracts, as separate and distinct obligations of 
the agent and the bond specifically recites this fact 
and notes the limitation. 

The bond recites that the Fleet Corporation had 
required Sigsbee Humphrey & Company to furnish 
a bond for certain distinct purposes. It is to be noted 
here that the bond does not say it is for the faithful 
performance of anything, but on the contrary dis¬ 
tinctly says in the recital clause that all that was re¬ 
quired was a bond securing the corporation against 
fraud, dishonesty, willful misapplication or wrongful 
abstraction of the trust funds and the proper dis¬ 
bursement of such funds and the paying over of bal¬ 
ances of the trust funds to the owner of the funds (R. 
p. 16, line 7). And in the condition of the bond it is 
distinctly stated, not that Sigsbee Humphrey is prop¬ 
erly to operate the vessels, to man and equip them, 
exercise reasonable care to maintain them in an ef¬ 
ficient state, to avoid damage or injury to the vessels, 
to issue the customary charter parties, contracts and 
bills of lading, etc., but solely that the agent shall 
properly apply and hold the said “fund” and not de¬ 
plete said fund by fraud, dishonesty, wrongful ab¬ 
straction or willful misapplication, but on the con¬ 
trary shall hold said fund for disbursement for ex¬ 
penses (i. e., proper disbursements) and pay the bal¬ 
ance over to the Fleet Corporation and not take any 
part of it for itself—all as expressly required by that 
part of the contract which relates to the handling of 
trust funds and which is particularly referred to in 
the bond. 

The obligation of the bond is specifically limited 
to “any moneys or funds coming into the possession 




I 


or control of Sigsbee Humphrey & Company during 
the life and by reason of the aforesaid agreement”. 

i 

(B) With Respect to Appellant’s “Analysis of the 
Bond " 

At pages 27 to 29 of the brief, counsel for appel¬ 
lant contend in effect that there was not really one 
bond to require the proper handling of trust fun^ls 
and the payment over of them to the Fleet Corpora¬ 
tion but actually two bonds (one superimposed on t|ie 
other); that one of these bonds related to the proper 
handling of trust funds and was truly “fiduciary”; 
the other was merely a guaranty of proper account¬ 
ing, that is, bookkeeping by the agent, and presum¬ 
ably was a guaranty regardless of loss or profit from 
such improper bookkeeping. Such a fantastic con¬ 
ception of the bond in this case, which was very caije- 
fully drawn by the counsel of the Fleet Corporation, 
is sufficiently negatived by a cursory reading of the 
bond itself. 

It is plainly one bond reciting that whereas tfie 
Fleet Corporation required a bond to save the Cor¬ 
poration harmless from loss by the wrongful taking 
of certain trust funds which should come into the pop- 
session of the agent and from the failure of the agent 
properly to disburse “said funds” and to pay ov^r 
to the Fleet Corporation that part of the funds re¬ 
maining after such proper disbursements, now, there¬ 
fore, if the agent did not properly handle and paiv 
over these funds to the extent required, but did bn 
the contrary misapply such funds, the surety would 
be liable for any loss that was shown. 

The question whether the agent would be liable fqr 
acts of third persons which diminshed the fund which 
the agent held, is not necessary to be decided nor is its 
consideration in any way material to the argument. 
Certainly if the agent was liable for moneys stolen 






from the fund, it would be equally liable under its 
obligation to “pay over” that part of the fund after 
proper disbursements provided for in the contract, 
as it would under its obligation not to “misapply” or 
“abstract”. 

But as has been pointed out hereinbefore, the en¬ 
tire contention based upon an attempted splitting up 
of the bond into two parts does not in any way help 
the argument of appellant, for we have here before 
the Court a “willful misapplication” and “wrongful 
abstraction” of the funds by the agent for its own 
use, contrary to the express terms of the contracts 
(referred to in the bond) by which the agent was to 
hold the funds. 

(C) As to Appellant’s Contention About the Rules 
of Law Applicable to this Bond. 

At page^ 29-33 of the brief, counsel for appellant 
argue in effect that there are ambiguities in the bond 
and that the rules of law require that all ambiguities 
should be resolved against the surety. 

In this argument we respectfully submit counsel 
are mistaken both as to fact and as to law. On the 
questions with which we are here concerned the lan¬ 
guage of the bond is as clear and specific as it can 
be. It particularly and definitely guards against any 
willful misapplication by the agent of any of the trust 
funds coming into its possession and control under a 
contract referred to in the bond. The language is 
not to be refined away so as to introduce an ambiguity 
that is not there, as said by the Supreme Court in 
Guarantee Company v. Mechanics etc. Co., 183 U. S. 
402, 419. 

“(A rule of construction) cannot be availed of 
to refine away terms of a contract expressed with 
sufficient clearness to convey the plain meaning 
of the parties, and embodying requirements 


39 


compliance with which is made the condition to 
liability thereon. ’ ’ 


And in East and West Ins. Co v. Fidel, 49 ^ed. 
(2d) 35, 38, (quoted in Southern Surety Co. v. McMil¬ 
lan 58 Fed. (2d) 541, 546) it is said: 


“But it is not true that a strained construction 
will be resorted to in order to establish an am¬ 
biguity which does not exist. Courts do not fqrce 
an ambiguity in order to resolve it against the 


insurer. 


And in Standard Life and Accident Co. v. McNulty, 
157 Fed. 224, 226: 


“But this rule ought not to be permitted to have 
the effect to make a plain agreement ambiguous 
and then to interpret it in favor of the insured.’’ 


Moreover, if there had been any ambiguity in the 
language of the bond, that language was selectec| by 
the Fleet Corporation and not by the surety, as is 
ordinarily the case. (See oral stipulation, R. p. }15) 
The origin of the theory of construction (whicli, of 
course, presupposes ambiguity) upon which the ap¬ 
pellant relies is that one who prepares a contract is 
to have the words which he uses construed strictly 
against him. So if the obligee prepared the b<fnd, 
logically the construction should be just the opposite 
from that for which the appellant contends. And it 
has been so held by this Court in United Stated v. 
Bayly, 39 App. D. C. 105, at 114, where it is saidi 


“A distinction having an important bearing ujpon 
the question before us is presented in the Pauly 
case, 170 U. S. 133, 144; where the court, through 
Mr. Justice Harlan said: ‘If, looking at all its 
provisions, the bond is fairly and reasonably sus¬ 
ceptible of two constructions, one favorable to 
the bank and the other favorable to the suijety 
company, the former, if consistent with the ob- 




40 


jects for which the bond was given, must be 
adopted and this for the reason that the instru¬ 
ment which the court is invited to interpret was 
drawn by the attorneys, officers or agents of the 
surety company.’ The converse of this rule of 
construction, if such it may be called, would seem 
to be applicable to the present case, inasmuch as 
both the contract and bond were prepared, ‘by 
the attorneys, officers or agents’ of the District 
of Columbia.” 

In this portion of the argument counsel for appel¬ 
lant cite a letter of January 4, 1929, which was part 
of the correspondence exchanged between the surety 
company and the Fleet Corporation after the cause 
of action had accrued and demand had been made by 
the Fleet Corporation. It is difficult to see what pos¬ 
sible bearing the statements in that letter can have 
on the point counsel are making. Certainly the mean¬ 
ing of the bond is not to be determined by the view 
of either party expressed long after the liability, if 
any, had become fixed and the bond had long since 
ceased to operate. This was not a contemporaneous 
construction of an ambiguous contract, but if it was 
it certainly would not help the plaintiff. 

Again the surety’s statement of what the “charge” 
was or seemed to be, before the charge was made in 
the declaration, or in any other way, could not fix 
and determine the “charge” afterwards made by ap¬ 
pellant, especially since the surety did not know and 
could not know then what the charge was. 

The letter was obviously not an admission against 
interest; it was not a new promise on consideration; 
it patently did not require the Fleet Corporation to 
give up its claim that the bond was not a fiduciary 
bond or prevent the Fleet Corporation from charging 
fraud or unfair dealing, as it did charge. 


41 


i 


It is therefore wholly out of place in any argument 
on the interpretation of the bond to say (as counsel 
say on p. 32) that “appellee admits’’ that there is jio 
charge of fraud, dishonesty or unfair dealing. It is 
also wholly out of place to suggest that there is an 
admission by appellee that the bond is a “ perform¬ 
ance bond.” 

i 

It is equally out of place to contend that anybody 
is bound by the fact that the letter did not happen to 
mention the “collateral” or state that the surety had 
already been prejudiced by giving up the collateral 
or that the fact of such failure to mention has any¬ 
thing to do with the meaning of the language inserted 
in the bond by the Fleet Corporation. 

The meaning of the bond, if it requires any inter¬ 
pretation, is to be determined by the courts on well 
settled principles of interpretation, and not by views 
expressed in letters asserting or denying liability after 
the cause of action, if any, has accrued. 

Besides, the letter unequivocably stated that it w|as 
to be taken without prejudice to any defense tiie 
surety might make as the true facts (of which tjie 
surety was then ignorant) developed, and particular 
reservation of the “right to present any and all de¬ 
fenses that w’e may now or hereafter have” was made. 

i 

(D) As to “The Accounting Provisions of the Bond/ 9 

In this part of the brief for appellant, counsel con¬ 
tend that, assuming the requirement of notice applies 
to what is called the “accounting provisions” of t)ie 
bond, no notice would be necessary until the Fleet 
Corporation decided it had put a stamp of finality bn 
the various audits and reviews of the agent’s books. 

It is obvious, without going further, that if the no¬ 
tice could be postponed until the obligee on the bond 
elected to consider some one of the numerous reyi- 






42 


sions as “final” (and it was entirely within the keep¬ 
ing of the obligee to decide when that time arrived), 
notice could be postponed indefinitely and the notice 
clause would be wholly nugatory. Indeed such point 
of time could never be conclusively reached until the 
assured, who had the whole matter in its keeping, was 
willing to admit the fact and was willing to give the 
notice. That would be equivalent to saying that the 
positive notice requirement need not be complied with 
at all, if the assured did not desire to comply with it, 
and assured could bring suit at any time within twelve 
years withoiit having given any notice whatever and 
without any allegation of notice. Such a construc¬ 
tion reduces the argument to an absurdity. ( Public 
Warehouses v. Fidelity & Deposit Co., 77 Fed. (2nd) 
831, 832.) 

But a common sense reading of the notice clause 
shows that it did not mean such an absurd and futile 
requirement. 

The notice clause speaks of “discovery” and of 
“any evidence.” “Upon discovery” and not upon 
final perfecting at the election of the obligee, is the 
notice to be given. What is to be discovered is “any 
evidence,” not a conclusive determination. It is for 
the surety to decide whether the evidence is sufficient 
to justify action, as for example in cancelling the 
bond, or calling on the principal to pay. ( Guarantee 
Co. v. Mechanics Savings Bank, 183 U. S. 402; Ameri¬ 
can Surety Co. v. Bankers etc., Assn., 59 Fed. (2d) 
577). To use again the language of the Supreme 
Court in the case above cited: 

“Our understanding of the provision is that 
what the company stipulated for was prompt 
notification of information by the bank in regard 
to speculation or gambling on the part of the em¬ 
ploye. It was entitled to exercise its own judg- 


43 


ment on that information and had not agreed to 
rely on the bank’s belief in that regard. It had 
the right to investigate for itself whether the bank 
did so or not. Notification of the existence of 
reason for inquiry was exactly what the clause 
was intended to secure. The bank neither inves¬ 
tigated nor gave the company notice of the in¬ 
formation it had, and substituted its own judg¬ 
ment as to the value of that information for that 
of the company (surety). In our view this con¬ 
duct on its part amounted to a breach of the 
stipulation . 9 9 

And the court added that it was not a question of 
“good faith” on the part of the assured—it was a 
question of what information they had and what they 
did, whether in good faith or not. And, as said by 
the Court of Appeals of the Second Circuit (Public 
Warehouses v. Fidelity & Deposit Co., 77 Fed. (2nd) 
831): | 

“To say that the 30 day period did not begin 
to run until the assured had discovered the de¬ 
tails of the loss would allow the assured to delay 
the investigation and to file a claim at its o\yn 
convenience . 9 9 I 

But the argument on generalities is particularly in¬ 
appropriate here, for as we have hereinbefore pointed 
out every item of claim now made was known to the 
Fleet Corporation in November 1922 (nearly six years 
before any notice was given the surety) and the ac¬ 
count of every voyage of every vessel and all the 
wrongful withdrawals from the trust fund were set 
forth in an audit submitted to the Fleet Corporation 
by its auditors and known to its counsel at that time. 
(Rec. pp. 101, 102). | 

“Evidence” means facts, not law. Whatever “evi¬ 
dence 9 9 existed in 1928 therefore, existed in 1922, ai^d 
was before the Fleet Corporation. That it may haye 


i 




r 


44 

changed its view on the law of course does not change 
the facts. It was the condition of the bond that the 
obligee give notice of whatever facts it had—“any 
evidence with all available facts’’ at the time it dis¬ 
covered those facts or within thirty days after such 
discovery. 

Since the facts are set forth in documentary form, 
embodied in a ‘ 4 Stipulation of Facts’’ and not sub¬ 
ject to dispute, there is no escape from the conclu¬ 
sion that the “facts” of the accounts of Sigsbee 
Humphrey & Co., agent and operator, (as well as 
the wrongful abstractions and willful misapplications) 
were “discovered” and known to the Fleet Corpora¬ 
tion at least five years before the “written notice 
thereof with all available facts” was given to the 
surety on the bond. The obligee, the Fleet Corpora¬ 
tion, whose duty it was to give the notice, did not 
have merely some facts, the “available facts”—it had 
all the facts in 1922. 

(2) As to Appellant’s Contention that No Notice Is 
Required Under the “Accounting” Provisions. 

The discussion of this subject is found in Division 
II, p. 36-42 of appellant’s brief. 

The argument that the bond should be split up into 
two parts or three parts, has already been discussed 
herein, and further comment is unnecessary. 

The short and simple answer to the contention that 
the notice clause applies to one part of the bond and 
not to another, is found in the language of the notice 
clause itself. It says in plain language that in case 
of any “claim hereunder” the surety shall be given 
notice of the facts as soon as discovered. It does 
not say that in the case of claim for failure to ac¬ 
count, or a claim for misapplication, or a claim for 
failure to pay over—it says in case of any claim 


45 


“hereunder” which, as is too plain for argument, 
means under this bond, all this bond, and all or any 
of its provisions. 

Counsel for appellant begin the argument by stat¬ 
ing that there were differences between the Fleet 
Corporation and the agent as to the interpretation 
of the contract and from this is deduced the conclu¬ 
sion that the Fleet Corporation could have no “evi¬ 
dence” until these differences were straightened o^it. 
The fallacy of such argument has already been 
pointed out in the discussion in the preceding portibn 
of this brief. Questions of interpretation of contracts 
are questions of law and not of fact. 

Precisely the same situation was presented in t[he 
Mechanics Savings Bank case in the Supreme Coiirt 
(183 U. S. 402), already cited. In that case the sug¬ 
gestion was made that the bank did not report and 
was not required to report that the officer who was 
bonded had been engaged in gambling because the 
bank officials considered that what he was doing wjas 
not really gambling. But the court said that it wjas 
not for the bank officials to decide this question of 
law, determinable under the statutes relating to gam¬ 
bling in the state, but that it was their duty, under 
the requirement of the notice clause, to give the surety 
at least whatever facts they had, so that the surety 
could determine the effect of those acts and determine 
what the surety should do under the circumstances. 
It was not, the court said, a question of whether the 
br>nk officials were acting in good faith in deciding 
that this was or was not gambling; that such good 
faith, no matter how clearly established, would T^ot 
relieve them of the duty to give to the surety what¬ 
ever evidence they did have. 

In the case at bar it is not, and cannot be, denied, 
as we have already pointed out, that all the facts 




46 


were before the Fleet Corporation and fully known 
to it many years before there was any effort to inform 
the surety of those facts. Even if, in good faith, the 
officers of Fleet Corporation were uncertain on the 
question of law, that is, the question of legal inter¬ 
pretation of the agency contract, it was their duty 
to give the surety the available facts; i. e. whatever 
facts thev did have. 

(3) As to Appellant’s Contention that Notice Is Not 
a Condition Precedent . 

In the principal part of this brief we have discussed 
the cases holding uniformlv, that where in a suretv 
bond, whether fiduciary or indemnity, the bond by 
express language makes the giving of notice of de¬ 
fault a 11 condition’’ of the bond, compliance with 
the notice requirement is a condition precedent to 
liability of the surety. 

It only remains to point out that in the cases cited 
by counsel for appellant at pages 42-58 of brief, 
there is nothing referred to which in anv wav contra- 
venes that doctrine—certainlv not anvthing in the 
Federal Courts, where the rule is thoroughly settled 
bv numerous cases directly in point. 

In some of the cases so cited in this part of appel¬ 
lant’s brief, the bond contained no words of condition 
and consequently the duty to give notice was plainly 
a mere covenant; in some of the cases cited the deci¬ 
sion rested upon state law or rule read into the con¬ 
tract of that state; in some others of the cases the 
opinion on the exact point is just the opposite of that 
for which counsel for appellant contend. 

For example, (of cases of the latter class) the first 
case counsel cite is New Amsterdam Casualty Co, 
v. U. S, Shipping Board , 16 Fed. (2nd) 847, a decision 
of the 4th Circuit Court of Appeals. In that case 


47 


l 


i 


there was no requirement whatever that notice of de¬ 
fault should be given. But on the subject with whi<>h 
we are here concerned; i. e. what the law is if notice 
is required and is made a condition of the bond the 
Court said in emphatic language: 

i 

“They (the authorities) hold that failure to 
give notice of default in accordance with the 
terms of a condition contained in a fidelity or 
indemnity bond releases the surety from further 
liability thereunder. There can he no question 
that such is the law. * * * 

“In those cases (where requirement of notice 
is incorporated among the conditions of the bond) 
notice of default vras provided as a condition qf 
liabilitv, doubtless because the liabilitv of the 
surety was contingent upon the bad faith or 
breach of contract of the principal which would 
he exclusively within the "knowledge of the ob¬ 
ligee , and, if there was to be a claim of liability, 
the surety desired prompt notice, so that it might 
investigate the circumstances upon which its lia¬ 
bility was to depend.” 


The next case cited is Murray v. American Surety 
Co.y 69 Fed. (2nd) 147. That case contains the strong¬ 
est kind of language against appellant’s contention 
in the case at bar, and cites numerous cases in the 
federal courts, including three in the Supreme Court 
in support of the general principles of the law on this 
particular subject. In addition to the quotation which 
counsel for appellant gives, the court said that “the 
plain meaning (of the language used) is that liabiliijv 
on the bond is conditioned on performance of what 
follows. There is no ambiguity to be resolved in favor 


of the insured”. 

Counsel for appellant (apparently abandoning the 
position that there must be a forfeiture clause before 
a “condition” in a bond will mean what it says) con- 


! 

| 

i 


48 


sider that the entire explanation of the opinion on 
the law in the Murray case rests on the use of the 
words “express condition” instead of the word “con¬ 
dition”. But no such emphasis is found in the court’s 
exposition of the subject, nor do the cases cited indi¬ 
cate that the court had any such distinction in mind. 

Again, counsel say that the bond considered in 
that case was a “fidelity” bond (the terms of which 
however, are not given in the opinion) and that all the 
language used was confined to a fidelity bond. But 
the court itself puts no such limitation on its opinion 
and the cases cited show clearly that no such narrow¬ 
ing of the opinion was intended. 

The next case cited by counsel for appellant is 
National City Bank v. National Security Co., 58 Fed. 
(2nd) 7, a decision of the Circuit Court of Appeals 
for the 6th Circuit. That case, far from sustaining 
any contention of the appellant, lays down most em¬ 
phatically general principles of law (with the cita¬ 
tion of from ten or more federal cases) just the op¬ 
posite of appellant’s views. 

The Court of Appeals says: 

“The Bank contends that, as the bond does not 
specifically provide that the failure to give notice 
of the loss shall forfeit the bond or preclude a 
recovery thereon, the provision requiring the in¬ 
sured to give such notice as soon as possible is 
not a condition precedent and does not defeat re¬ 
covery. The bond provides that it ‘is subject to 
the following conditions and limitations,’ one 
of which is that the insured shall give notice as 
soon as possible after learning of the loss. It 
does not state in terms that notice is a condition 
precedent or that failure to give notice shall for¬ 
feit the bond. It is plain, however, according to 
the current of authority, that, where one of the 
conditions of an indemnity bond is the giving 
of notice of the loss within an agreed time, if no- 



49 


tice is not given within such time, there is no lia¬ 
bility on the bond. * * * ” 

That case also disposed of a number of other conten¬ 
tions of appellant, such as the question of what Con¬ 
stitutes a loss; the question of whether any ambiguity 
can be introduced into a bond when the bond ex¬ 
presses itself with such clearness as to convey ithe 
plain meaning and on the point of waiver. That qase 
not only cites numerous authorities in support of Ithe 
propositions of law but it also has frequently bOen 
cited in leading federal cases. 

The contention that the entire explanation of the 
accurate statement of the law in that case (so directly 
contrary to contentions of the appellant in the case 
at bar) is found in the fact that the bond there 
was a fidelity bond and that the word “limitation” 
was used in the bond—is wholly without justification. 
Nor was anything said in the opinion, or deducible 
from the nature of the authorities cited, in support of 
such view. In its general statement of the law, the 
court describes the bond as an indemnity bond. What 
its exact terms are does not appear. Again the court, 
in stating the rule, made no distinction between a 
bond which contains the word “condition” and a bhnd 
which contains the words “condition and limitation”. 

The next case in this part of appellant’s brief is 
American Surety Co, v. Bankers’ Savings & Loan 
Ass’n ., 67 Fed. (2nd) 803, a decision from the 8th 
Circuit. The principles were laid down by the cdurt 
in that decision (directly contrary to the contentions 
of appellant in the case at bar) as follows: j 

“Under the terms of the indemnity bondj in 
suit, in the absence of an applicable state statute, 
the requirement that notice should be given the 
surety company within ten days after the discov¬ 
ery of the loss was a condition precedent to ilia- 


i 



50 


bility on the part of the indemnity company. 

* * * Such stipulations in insurance contracts, 
voluntarily entered into, have uniformly been 
recognized as valid, and are intended to foreclose 
speculation as to whether the insurer would be 
able to prevent or minimize loss if prompt notice 
had been given.’’ 

Of course, when a state statute fixes the terms of 
an insurance contract and the statute is read into the 
contract, the statute must be applied and the court 
so held. 

There is in the case at bar no applicable state or 
district statute and consequently the opinion of the 
court above governing the general principles of law 
is directly in point for appellee. 

Of the other cases cited on p. 46, none involved the 
question of notice to the surety of default of the prin¬ 
cipal except the Wachovia Bank case, where notice 
was plainly hot given in time and it was held the fail¬ 
ure to give notice discharged the surety. The lan¬ 
guage of the “condition” was “upon the following ex¬ 
press conditions.” 

It is not hecessary to discuss the cases cited from 
the district courts or the state courts, for even if in 
conflict with the numerous decisions in almost every 

w 

Circuit Court of Appeals, the carefully reasoned and 
reiterated statement of the rule in the higher federal 
courts would govern. 

I 

The case of Southern Surety Co. v. McMillan , 58 
Fed. (2d) 541, does not in any way controvert the 
general rule and is plainly distinguishable. 

By the numerous decisions on the subject it is now 
well settled that a notice clause in a surety bond is 
a condition precedent to liability or is a mere war¬ 
ranty according as the language of the bond expressly 
makes the notice a condition of liability by using the 


word “condition” preceding the description of | the 
obligation to give notice. In the McMillan case ^his 
settled rule is clearly recognized and all the McMillan 
case held was that the word “provided”, which is a 
word of various uses and employed in various senses, 
is not necessarily equivalent to the words “upon Con¬ 
dition. ’ ’ 

There is no case upon which the court relies wjiieh 
holds that the words “upon condition” do not mean 
what they say and do not mean a condition precedent 
to liability. “Condition” is the governing vford 
which, it is unequivocably recognized in the McMillan 
case, expresses a certain definite intent of the parties. 

In the McMillan case the court held, following nu¬ 
merous decisions of the Eighth Circuit and the deci¬ 
sion of the Supreme Court in the Guarantee Company 
case “that if the parties have made the giving of no¬ 
tice a condition upon the obligation of the surety 
company, failure to give such notice relieves the 
surety company of liability.” 

It thus appears from a review of all the cited cases 
of highest authority in the federal courts that the rule 
is that where notice of default is made a “condition” 
of the surety bond (whatever the nature of the bdnd) 
the giving of such notice is a condition precedent to 
liability, so long as the notice clause concerns a de¬ 
fault in a continuing bond with no fixed liability at 
its inception and the knowledge of such default would 
be exclusively in the keeping of the obligee. 

But here, in the case at bar, even on the limitations 
of the decisions which counsel for appellant seeks to 
make, the required notice would still be a condition 
precedent to liability, for we have here a default in 
the handling, in a fiduciary capacity, of “trust funds” 
squarely coming within the first clause of the cov¬ 
erage provisions of the bond, which counsel seems to 
concede is a “fiduciary” or “fidelity” clause. 



52 


(4) As to the Contention of Appellant that Due No¬ 
tice Was Given. 

It is not necessary in answering this portion of brief 
of appellant to follow and discuss in detail the various 
extracts from the record which counsel has picked 
out as a basis -of the argument nor to point out the 
most important and vital documentary evidence in 
the stipulation of facts which counsel for appellant 
omit and completely ignore. 

A full statement of the pertinent facts jnade up of 
documents which speak for themselves and which are 
undisputed and constitute admissions, is contained in 
the principal part of our brief under part II of the 
argument. 

The fact remains and no one can read understand¬ 
ing^ the documents, reports and correspondence, all 
before the Fleet Corporation in 1922, without realiz¬ 
ing that in 1922, many years before any notice of 
“evidence of loss with all available facts” was given 
to the surety, the Fleet Corporation had in its knowl¬ 
edge and possession all the pertinent facts (applicable 
to any legal interpretation that might be made) in 
Exhibits 18 (a), 19, 19 (a) and 19 (b), pages 101 to 
105 of the record. And no one denies or can deny 
that any notice of these facts (or that the Fleet Cor¬ 
poration possessed these facts) was given to the surety 
at the time or within thirty days after discovery or 
until 1928. 

With these outstanding and undisputed facts in 
the record, it is difficult to see how any one can say 
seriously that the Fleet Corporation or obligee on the 
bond in this case complied with the notice clause. A 
search of the brief of appellant shows that appellant 
does not squarely meet this contention at any point 
in the brief. Such a search shows that the real excuse 




53 


which appellant offers is wholly untenable, tha^; is, 
although the Fleet Corporation had every fact j and 
every bit of evidence in 1922 that it now has, it had, 
from time to time during the six years of failure to 
give notice, varying opinions on the law, never, how¬ 
ever, at any time having even an opinion on the law 
which by any application of all the known facts 
could show other than that the Agent, the Sigsbee 
Humphrey Company, was obligated to the Fleet Cor¬ 
poration in large sums of money, over $100,000.00, 
because of alleged mishandling and misapplication of 
the funds entrusted to the Agent by the Fleet Cor¬ 
poration. 

Nor is it necessary to discuss the authorities which 
appellant cites on the question of notice, knowledge 
or evidence. No case holds that where the assured 
has all the facts before him in written form thO as¬ 
sured can be said to have no “knowledge” and no 
“evidence” of those facts. And no case holds that 
where the obligee knows from an inspection of those 
facts that on any view of the law there is bound to 
be a shortage in the trust fund, the assured is exchsed 
from giving notice. 

The facts in the record in this case are conclusive. 
The court below hearing them and considering the 
facts that certain witnesses would testify to, and the 
stipulations and the explanation of counsel of the 
various facts, made a formal finding of fact onj the 
very point here in issue, and sitting in lieu of a jury, 
concluded from such hearing that on this issue | the 
facts required a verdict for defendant. 

No one contends that there is nothing in the evi¬ 
dence to support such a verdict. 


i 

I 

i 




54 


(5) As to Appellant’s Contention that Notice Was 
Waived. 

The question discussed in this part of appellant’s 
brief (pages 72-75) was not included in the specific 
questions stipulated to be submitted to the court be¬ 
low, nor was it presented in the pleadings. Since 
counsel for appellant argue the point, however, in the 
brief now before this court, we will refer to and 
answer such argument. 

There is not a particle of evidence in the Stipula¬ 
tion of Facts to show that at any time prior to the 
demand on the surety, the surety had any knowledge 
that Sigsbee Humphrey & Company at any time mis¬ 
applied moneys in the trust fund belonging to the 
Fleet Corporation and that the Fleet Corporation 
discovered this about the time it occurred. And it is 
well settled law, found in numerous decisions in the 
Federal Courts (including three decisions in the Dis¬ 
trict Court of the District of Columbia, hereinbefore 
referred to) that there can not be a waiver without 
knowledge of what is being waived. 

In one of the leading cases on the subject, Insur¬ 
ance Co. v. Wolff, 95 U. S. 326, it is said: 

“The doctrine of waiver, as asserted against insur¬ 
ance companies to avoid the strict enforcement 
of conditions contained in their policies, is only 
another name for the doctrine of estoppel. It 
can only be invoked where the conduct of the 
companies has been such as to induce action in 
reliance upon it, and where it would operate as 
a fraud upon the assured if they were afterwards 
allowed to disavow their conduct and enforce the 
condition^. To a just application of this doctrine 
it is essential that the company sought to be 
estopped from denying the waiver claimed should 
be apprised of all the facts; of those which create 
the forfeiture, and of those which will necessarily 


55 


i 
i 

i 
| 

influence its judgment in consenting to waive it. 
The holder of the policy cannot be permitted to 
conceal from the company an important fact, like 
that of the insured bein<r in extremis, and then 
to claim a waiver of the forfeiture created by the 
act which brought the insured to that condition. 
To permit such concealment, and yet to give to 
the action of the company the same effect as 
though no concealment were made, would tend 
to sanction a fraud on the part of the policy-holder, 
instead of protecting him against the commission 
of one by the Company.” 

And in National City Bank v. National Surety Co., 
58 Fed. (2nd) 7, (Sixth Circuit) it is said: | 

i 

| 

“There is nothing in the evidence in the present 
case to show that the surety company ever] ad¬ 
mitted liability or ever agreed at any time, fbr or 
without a consideration, to waive the notice re¬ 
quired by the bond. Nor is there evidence of 
any act committed by it that operates to dstop 
it from taking advantage in this proceeding of 
the default of notice. That default had already 
occurred when it was advised of the loss. Nothing 
that it did or failed to do at that time or later 
misled the bank or placed it in a position differ¬ 
ent from that which it originally occupied, Jlad 
the surety company denied liability for lac|s of 
earlier notice when its attention was first called 
to the Carter claim, the bank could have 3one 
nothing that it did not do to avoid the effect of 
its default. In this situation there can b£ no 
estoppel.” 

In Murray v. American Surety Co., 69 Fed (2nd) 
147 (Fifth Circuit) the court says: 

“This defense was certainly not intentionally 
waived because it was not known. The letter of 
the receiver on June 10, 1931, referred to ‘the in¬ 
vestigation now being conducted,’ and, since the 

| 

. 

i 

■ 



56 


bond required notice at the earliest practicable 
moment, the natural inference was that the loss 
had just been discovered. If so, the surety was 
not liable because the discovery was not within 
a year from May 25, 1930, and non-discovery in 
time was apparently the proper defense. The 
misapprehension was not corrected by the next 
letter from the receiver’s attorney, which did not 
inform the surety that the discovery had in fact 
occurred within the year, which information, if 
given, would have made apparent the defense of 
failure to notify within ten days, but the surety’s 
mistake was rather encouraged by silence; and 
then sought to be taken advantage of in the suit 
when waiver of notice was set up in the declara¬ 
tion to excuse the want of it. When for the first 
time the defense of want of notice was thus dis¬ 
closed, th4 surety promptly took advantage of it. 

Neither is there estoppel against urging it. The 
time for giving notice was long since past on 
June 10th. The receiver was not misled in any 
way to his injury. He did not omit to give a 
notice because he was led to think it would not 
be required, nor was he led to undertake any 
labor or expense in that belief. If any one was 
misled, it was the surety company, and as to a 
fact lying peculiarly within the receiver’s knowl¬ 
edge.” 

So also, in the case at bar, there could be no estoppel. 

After the formal notice was given to the surety 
(though too late because knowledge had been acquired 
more than six years before the notice was given), 
there was nothing whatever to show any change of 
position or detriment to the Fleet Corporation because 
of any act or statement of the surety. Therefore, there 
could not possibly be any basis for an estoppel. 

What the Fleet Corporation did was simply to 
notify the surety, and the surety denied liability and 
stated it would investigate. The Fleet Coporation had 







57 


already failed to give the notice within time. Nothing 
it could do thereafter could restore that failure. Mani¬ 
festly, therefore, there could be no estoppel to claim 
lack of notice. 

That the failure of the surety at the time of! de¬ 
mand made to claim lack of notice as a defense when 
the surety did not know that there was such a failure 
to give notice, would not be a basis of estoppel, is too 
well settled in surety cases to require reargument how. 
National City Bank v. National Surety Company, 58 
Fed. (2d) 7; Murray v. American Surety Co., 69 Fed. 
(2d) 147. | 

The authorities are uniform on both these subjects. 
Counsel for appellant cite no case to the contrary. 
The only authority relied upon in this part of doun- 
sePs brief is the case of National Benefit Association 
v. Elsie, 35 App. D. C. 294, holding that when h life 
insurance company continues to accept unconditionally 
premium payments which are made beyond the !time 
within which the premiums are required to be |paid 
under the terms of the policy, it is estopped to qlaim 
a forfeiture by failure to pay premiums on the exact 
date specified in the policy. In such a case manifestly 
the insurance company knew at the time thatj the 
premium payment was late, knew that it had a right 
to accept the payment only conditionally, and then 
with such knowledge accepted the premium and| con¬ 
tinued the policy in force. That decision is a far 
cry from the question raised in the case at bar. 

Here, in the case at bar, there was no knowledge and 
no facts and circumstances brought home to the sfirety 
that could be the basis for any intention of the sfirety 
either to waive anything or to mislead the Fleet j Cor¬ 
poration to its prejudice. 

Great stress is laid by counsel for appellant upon a 
certain letter from the Fleet Corporation to the stirety 

i 













58 


of October 24, 1922 (R. p. 98), which purported to be 
in reply to a letter of inquiry from the surety’s agent 
in Washington, sent to the Fleet Corporation some 13 
days before. This latter communication from the 
surety company (Rec. p. 97) as will be seen from 
an examination, contains a simple question as to 
whether there was any liability on the bond. 

From these two letters and particularly from the 
letter written by the Fleet Corporation, counsel for 
appellant base a large part of the argument on the 
subject of waiver. But to give any validity to the argu¬ 
ment it must necessarily be assumed that this reply 
letter was written in good faith, that is, that the Fleet 
Corporation at that time did not know that there had 
been any defaults, misapplications or wrongful ab¬ 
stractions from the trust fund by the agent and par¬ 
ticularly that the Fleet Corporation did not know 
of these more than thirty days before the letter was 
written. 

But this assumption is wholly contrary to the facts 
of the record in this case and the best answer to the 
argument of counsel is to point this out in some detail. 

The letter of the Fleet Corporation, consists of 
about five lines and is from the Treasurer of the Fleet 
Corporation to the Washington office of the surety 
and does not answer the inquiry whether there was 
any liability on the bond, but on the contrary avoids 
any answers to that question. 

Throughout the brief of counsel for appellant many 
assertions, representations, and promises have been 
read into this five line letter which are plainly and 
obviously not there . 

The paost extravagent claim of all is that in this 
non-committal communication (not from the surety 
to the Fleet Corporation, but from the Fleet Corpora¬ 
tion to the surety) there is to be found a waiver by 








59 


the surety of any notice of default by the agent whether 
discovered by the Fleet Corporation before or a^ter 
October 24, 1922, of which default the surety knew 
nothing and could not know anything. 

The letter is set out in full on page 98 of the Record, 
Exhibit 17. j 

It is addressed to the local agent of the surety com¬ 
pany in Washington. It does not appear that it was 
ever forwarded to the home office of the compahy, 
and it shows on its face that there was not necessarily 
any occasion for forwarding it because it wa^ a 
mere interim communication, with the suggestion that 
a real reply would go forward within a few days.! It 
did not purport to be a formal notice, or any other 
style of notice, of any kind or of anything, least of 
all did it purport to be a notice in compliance with 
the term of the notice clause. It was solely a note 
evading any answer to a previous letter and postpon¬ 
ing any position on the direct question of that previous 
letter. It simply stated that “we,” presumably mean¬ 
ing the Fleet Corporation, are going to take up With 
the auditing department the matter of having the 
accounts of the operator audited, and will adfise 
promptly. Not another word, not another thought— 
except the line of acknowledgment to the effect that 
the previous letter of October 11 was received that 
day—October 24th. j 

It is so obvious as hardly to require comment that 
this letter (even taken in connection with the pre¬ 
vious inquiry answer to which was avoided) did not 
contain any promises of the surety, or the taking of 
any position by the surety which indicated in 'the 
slightest way that the Fleet Corporation was thereby 
and by reason of this communication which it wrote, 
induced to act or refrain from acting with respect 
to its claim under the bond or with respect to its 





60 


obligation to 1 comply with the notice condition of 
the bond. 

Nor by any distortion of the language could this 
letter be said to be an assurance by the surety com¬ 
pany that if the Fleet Corporation thereafter discov¬ 
ered evidence of default by the agent it might never¬ 
theless refrain from giving the notice required by 
the bond. And much less could it be said that it was 
an assurance by the surety company that if the Fleet 
Corporation had already discovered a default by the 
agent and had already itself defaulted in the giving 
of the required notice by letting the thirty days 
go by (of which the surety knew nothing) the surety 
waived the failure to give notice in time. 

But when the background (of which the Fleet Cor¬ 
poration alone knew and concealed from the surety) 
is considered, the contentions made about this letter 
become plainly untenable. 

As far back as April 8th, 1921, about a year and 
a half before the inquiry was made of the Fleet Cor¬ 
poration in this letter by the local agent of the surety 
company, (Rec. p. 97) and some thirty days before 
the agent, Sigsbee, Humphrey & Co., was requested 
to secure renewal of the bond with the surety but for 
a lesser amount, which was refused, (Rec. p. 85, Ex¬ 
hibit 8), the Fleet Corporation, having evidently gone 
over the handling of trust funds by the Sigsbee Hum¬ 
phrey & Co., in connection with the payment of certain 
advances charged to have been obtained by false 
representations of the agent, discovered that there was 
an overpayment under the M03 contract to the extent 
of about $50,000. 

The charge and demand, however, were tentative, 
pending a definite agreement between Sigsbee, Hum¬ 
phrey & Company, and the comptroller of the Fleet 
Corporation. It does not appear by the record that 







61 


any such agreement was ever reached and so far 
as the record shows this money continued to be owing 
when the agent “terminated its position” as operator 
completely and closed out the trust fund account. 

The next date of importance is the termination of 
the agency above referred to. This took place on 
December 30, 1921, when the trust fund account was 
closed out and a check for some $4,000 was sent to 
the Fleet Corporation as remittance “closing out jthe 
trust fund” of the Fleet Corporation held by Sigsbee, 
Humphrey & Company. (R. p. 116) 

But assuming that the knowledge which the Fleet 
Corporation had on April 8th, 1921, was only tenta¬ 
tive, it is evident that it started at once a thorough 
investigation and soon made discovery of actual mis¬ 
application of trust moneys by the operator which 
was a definite and conclusive violation of the duties 
of the agent-trustee under the provisions of the operat¬ 
ing contract for the handling of trust funds. (R. p. 
21, par. 9 as to duties of agent in handling “timst 
funds” and permitting no payment by the agent to 
himself out of such funds). 

By September of that year, Mr. Fetzer of the law 
department was advising other counsel and the audi¬ 
tors and investigators with reference to what was to 
be looked into in going over the Sigsbee Humphrey 
accounts, (R. p. 87). Reports and correspondence 
continued on this subject up to July, 1922 (R. p. 94). 

By July 25, 1922, the investigation had come to 
such a point that the Law Department, whose duty 
it was to take under consideration such matters, and 

'I 

to take steps to protect the rights of the Fleet Corpora¬ 
tion, and particularly to preserve its rights underj any 
bond (R. p. 94), felt called upon to advise the agent, 
Sigsbee Humphrey & Co., that nothing remained but 
to “resort to legal procedure to enforce payment of 






62 


the balance due from yon to the government,” and 
that the Law Department would, therefore, refer the 
matter to the Department of Justice for appropriate 
action. (R. p. 96, end of Exhibit 13.) 

But the matter did not rest there. The Fleet Cor¬ 
poration evidently decided to put itself on record, 
definitely and fully committing itself to the proposi¬ 
tion that it had discovered and knew that Sigsbee 
Humphrey & Co., the agent, had prior to the closing 
out of the “U. S. Shipping Board Trust Funds” made 
wrongful withdrawals for its own use to put in its 
own pocket trust moneys to the extent of $81,682.59. 
On August 18th, 1922, formal notice and demand was 
served on the agent, by advice of the general office 
at Washington, making this charge of misapplication 
as above stated. (R. p. 96, Exhibit 14). This letter 
of course went to Sigsbee Humphrey & Company only 
and no communication of any kind was made to the 
surety . 

It will be noted that this letter was shortly after 
a communication from John E. Fetzer, Assistant Coun¬ 
sel in the Law Department, Shipping Board Emergency 
Fleet Corporation (R. p. 96, and Exhibit 13) and 
it is evident that the Law Department had been con¬ 
ferring with the other departments and was fully alive 
to the situation and that this formal demand on the 
agent was made as a result of the conclusion of the 
Law Department that nothing remained but to bring 
suit against the agent, refer the matter to the Depart¬ 
ment of Justice and to make the record clear and 
specific. 

And then time went on. Nothing whatever was 
done until September 29, of that year, some forty-two 
days after the Fleet Corporation had admitted its dis¬ 
covery of the information which it had and the nature 




63 


of the act of the agent as a default in performance 
of its obligations in handling the trust funds. 

On September 29th of that year, a letter was written 
by Mr. Fetzer of the Law Department to the agent, 
but all that was said in the letter of September 20th, 
(R. p. 97, Exhibit 15) was that the accounts of 
Sigsbee, Humphrey & Co., were being “reviewed.” 
Though it may not be of any great importance, it 
is certainly significant at this point that Mr. Fetzer 
who had the whole matter before him and who t^as 
very accurate in his statements, did not say that the 
accounts were for the first time being examined or 
that all the facts had not theretofore been knojwn, 
but merely that these facts were being “reviewed”— 
that is, gone over again. Of course, this was strictly 
consistent with his previous statement that the exami¬ 
nation of the accounts was in such shape “that he toas 
obliged to submit the matter to the Department of 
Justice for appropriate action.” 

At this point, therefore, September 29, 1922, we find 
the following situation; the investigation of the FJeet 
Corporation Trust Funds in the hands of Sigsbee, 
Humphrey & Company had been such as to require 
legal procedure and reference to the Department of 
Justice; the agent had been advised of the dis¬ 
covery by the Fleet Corporation and the nature of 
the agent’s paisapplication of trust funds had been 
definitely stated and the charge of default definitely 
made against the agent. 

But nothing had been done to notify the surety in 
accordance with the notice provision of the bond in 
suit in this case. 

And the thirty days had gone by and it was too'late 
to give notice to the surety company and the Fleet 
Corporation, obligee on the bond , was already in j de¬ 
fault in the performance of its obligation to give\ no- 





64 


tice, the performance of which obligation by the ob¬ 
ligee was a condition precedent to the liability of the 
surety on its bond. 

And then, in that embarrassing situation, there 
came the letter from the surety of October 11, 1922, 
saying to the Fleet Corporation in effect if you have 
any knowledge of default of the agent for which you 
are going to make claim against us, please let us know. 

It is reasonable to assume that there may well have 
been some investigation in the offices of the Fleet 
Corporation, and very likely some conferences to de¬ 
cide how to frame an answer to that inquiry. Doubt¬ 
less there was some discussion of the order of the 
Board of Trustees found at p. 94 of the Record, de¬ 
scribing the duty of all officers whenever “ there was 
any misuse or misappropriation of trust funds” 
promptly to report the matter to the General Comp¬ 
troller and immediately notify the Law Department 
“without completing the audit” so that the Law De¬ 
partment could take the proper steps “to preserve our 
right under the bond” (R. p. 94, Exhibit 12, para¬ 
graph 2). 

And then the time came when something must be 
done about this disconcerting inquiry of the bonding 
company. What position should be taken? The thirty 
days had already gone by. The Fleet Corporation 
had failed to give the notice within thirty days of dis¬ 
covery. It had already committed itself to having 

made the discoverv in written documentarv form and 

* * 

the surety had not the slightest intimation of it. 

So time went on for about another thirteen days. 
But some answer must be made; some position must 
be taken. Those in charge of the matter evidently 
decided to take no position, but to evade instead and 
to delay. So the only thing said which was actually 



I 


65 


in reply to the inquiry was, in effect, “we will let you 
know our position in the near future / 9 

It is appropriate at this point to remark ho\*[ ex¬ 
traordinary is the argument on the subject of waiver 
to seek to use this plain deception of the surety and 
this concealment of a fact then known to the Fleet 
Corporation and vital to the question of any liability 
of the surety at all—and turn this wrong on the stirety 
into a claim of waiver of all the rights which the 
surety had growing out of a failure of the obligee to 
comply with the condition precedent in the bondJ 

Immediately after this letter of October 24, 1922, 
the accountants, investigators and attorneys became 
very active. By October 26, Mr. Morrison, Assistant 
to the Director of Finance, was writing a full report 
on the Sigsbee Humphrey matter. By November 8th 
all concerned (except the surety) had before them a 
complete and elaborate statement of the Sigjsbee 
Humphrey operations and handling of trust funds, 
including the wrongful abstractions and misapplica¬ 
tions—every detail of all ships and all voyages! and 
all earnings on the M2, 02 contracts, the M03 con¬ 
tract, and the M04 contract. Indeed so explicit was 
this that not only were all the facts established and 
set down in dollars and cents, but also they werd cal¬ 
culated on every theory of the law that had been sug¬ 
gested—each vessel separately, and grouping all ves¬ 
sels together, each on three different bases of calcu¬ 
lation. 

So that whatever theory of the law should be [used 
in making the calculations, the Fleet Corporation 
would know all the data; and the significant fact re¬ 
mains that on no theory of the law could the Fleet 
Corporation have found any other than a shortage in 
the trust funds of a very large amount. (Exhibit 18, 
18a, 19, 19a, 19b, pp. 98-106) • | 







66 


After this, but still in 1922, the General Counsel of 
the Fleet Corporation stated that the amount was ex¬ 
actly $291,172.66. This was said to be after careful 
examination of the reports of the auditors and coun¬ 
sel. This finally wound up the matter; all the books, 
all the accounts, all the evidence upon which to make 
calculations or conclusions had long since been with¬ 
drawn from Sigsbee Humphrey & Co., and were then 
in the files of the Fleet Corporation for inspection 
and examination. No new facts were afterwards dis¬ 
covered, no other sources of information became avail¬ 
able, every fact and all data remained the same. 

It seems too clear for argument that the Fleet Cor¬ 
poration’s change in its view of the law, either as to 
the effect of failure to give notice or as to liability of 
the agent in handling of the trust funds or the liabil¬ 
ity of the surety for the acts of Sigsbee Humphrey 
& Co., could not change the time of its discovery of 
the facts or bring to life that which the failure to give 
notice had destroyed. 

The conclusion is inevitable that the concealment 
from and deception of the surety, in the letter of the 
Fleet Corporation of October 24, 1922 could not be 
the basis of waiver or estoppel of the surety. 

Appellant asserts (see page 73 of its brief) that it 
would be a perversion of justice to permit the surety, 
holding collateral, to escape all liability by technical 
objections as to the sufficiency of the notice actually 
given. The fact is that the surety holds no collateral 
security for this undertaking, and has not held any 
for. years prior to receiving notice from the Fleet 
Corporation in April, 1928. 

...While the.surety did receive collateral from a third 
party, not the agent, to support the agent’s indemnity 
.agreement at the time the bond was entered into in 
January 1920, the'surety was compelled to surrender 



67 


this collateral to the third party, after that third 
party had ascertained that the surety, at the re¬ 
quest of the Fleet Corporation, had agreed tha^; the 
bond, given to secure the M2 and 02 contracts, should 
extend to the M03 contract. In making this surren¬ 
der, the surety had no choice, since the third patty’s 
consent was never obtained to the extension of the 
coverage of the M03 contract, and the security was 
given only for the bond as covering the M2 02 con¬ 
tracts. 

While no evidence of the foregoing appears in the 
record as made by the stipulation of facts, this was 
thought entirely unnecessary since the only two issues 
before the Court under the stipulation were, first , 
whether the notice provision is a condition precedent 
and, second , whether the Fleet Corporation has com¬ 
plied with that notice condition. 

Obviously, this question of collateral has no tear¬ 
ing on either of these two issues, but, if the question 
were raised by the pleadings, or at the time the 
stipulation was entered into, appellee would have sub¬ 
mitted competent proof which would have fully sub¬ 
stantiated the truth of the foregoing statement^ 

CONCLUSION | 

i 

1. On the first issue submitted to the court below, 
the record shows that the bond in suit in this ca?e by 
express and apt language makes the giving of notice 
bv the assured a condition of the bond. By all the 
controlling decisions cited on either side such express 
language in the bond makes the giving of notice of 
default a condition precedent to the liability of the 
surety on the bond. 

2. On the second issue submitted to the court b^low, 
the record shows without dispute (a) that the;first 
notice complying with the terms of the notice clause 
in the bond, or purporting to comply with that clause, 



68 


i. e., “written notice with all available facts” (to¬ 
gether with affording the surety every facility for in¬ 
vestigating) sent to the home office of the surety com¬ 
pany, was given to the surety on April 3, 1928; (b) 
that the assured whose duty it was to give the notice 
within thirty days of the discovery of the default of 
the principal, actually discovered in 1922 prior to Au¬ 
gust 18th of that year, that the agent had willfully and 
wrongfully withdrawn from the trust funds in its 
keeping large sums of money amounting to over 
$80,000 in direct violation of the terms of the agency 
contract by which the funds belonging to the as¬ 
sured were to be held as a trust fund by the agent; 
and (c) that if the Fleet Corporation, the assured, 
did not at that time, that is, on August 18th, 1922, 
have before it all the facts as to the agent’s handling 
of the trust funds and disbursements therefrom, it 
shortly thereafter acquired definite knowledge of all 
such facts, at least by November 13, 1922, whereas no 
notice was given to the surety until six years later. 

As the trial court, making a finding in lieu of a 
verdict, found as a fact that due notice was not given 
within the time and in the manner required by the 
bond, and, as a matter of law, that the notice require¬ 
ment was a condition precedent, the judgment should 
be affirmed. 

Respectfully submitted, 

Challen B. Ellis, 

Charles F. Quantrell, 

Attorneys for Appellee . 

W. Braxton Dew, 

Bigham, Englar, Jones & 

Houston, 

Ellis, Houghton & Ellis, 

Of Counsel, 





wn 














i 

i 


INDEX 


SUBJECT INDEX 


Introduction....... 

Argument: 

I. Improper Statements in Appellee’s Brief.. 

A. Statements Concerning Collateral Held by 

Appellee___ 

B. Statements Concerning Other Cases Decided 

by Lower Court. ..-. 

II. Letter of January 4, 1929..—.. 

III. Inconsistent and Conflicting Statements- 

IV. Liability Not Limited to Improper Withdrawals from 

Trust Fund..... 

V. Notice Given October 24, 1922- 

Conclusion_- 


Pate 

1 

2 


2 


11 

14 

19 

21 


AUTHORITIES CITED 

I 

Southern Surety Co. v. McMillan , 58 Fed. (2d) 541-21 




























i 


I 

i 

In the United States Court of Appeals 
for the District of Columbia 

April Term, 1937 j 

• j 

■■ 

No. 6960 

United States Shipping Board Merchant Fleet 
Corporation, to the Use of the United States 
of America, appellant 

v. | 

The Aetna Casualty and Surety Company, a 

Corporation, appelt.ee 

i 

APPEAL FROM THE DISTRICT COURT OF THE UNITED 

STATES FOR THE DISTRICT OF COLUMBIA j 

_ i 

REPLY BRIEF FOR APPELLANT 


INTRODUCTION 

j 

The Record in this case is already lengthy, and 
the Government hesitates to add to the Court’s 
burden by further argument. Counsel for the Ap¬ 
pellee have, however, included in Appellee’s brief 
certain statements by counsel which constitute 
testimony, as well as certain other misleading, con- 

i 

dieting, inaccurate, and inconsistent statements 
and argument. Appellant would, of course, be 
prejudiced by such testimony by counsel and the 
inaccurate statements contained in the brief, w^re 


39526—38 


1 


(1) 





2 


they permitted to stand unchallenged and uncor¬ 
rected; and, therefore, with the Court’s leave, we 
are constrained to file this short argument on 
behalf of the Appellant. 

ARGUMENT 

I 

Improper statements in Appellee’s brief 

'I. • 

A. Statements concerning collateral held by Appellee 

Counsel for Appellee are obviously embarrassed 
by the following argument which appears on Page 
73 of the Brief for Appellant— 

This letter was in reply to a further re¬ 
minder dated December 4, 1928, from the 
Corporation. While the letter states that 
the failure to receive “the notice required 
by the bond * * * operated to our prej¬ 

udice” no prejudice was or has been shown 
and no mention was or has been made of the 
surrender of the collateral security appellee 
admittedly held. It would indeed be a per¬ 
version of justice to permit appellee, holding 
collateral, to escape all liability by technical 
objections as to the sufficiency of the notice 
actually given. As was said in Atlantic 
Trust and Deposit Co. v. Town of Laurin- 
burg, 163 Fed. 690 (C. C. A. 4th) such sure¬ 
ties, without showing injury to themselves, 
are not to be “relieved from contracts which 
they clamor to execute.” 

Seeking to avoid the damaging effect of our ar¬ 
gument, counsel testify (p. 66-67 Brief of Appellee) 






3 


i 
i 
l 

as to alleged facts concerning the collateral Appellee 
admittedly held on October 11, 1922, as follows: 

The fact is that the Surety holds no cbl- 
lateral security for this undertaking, ahd 
has not held any for years prior to receiving 
notice from the Fleet Corporation in Apjril 
1928. 

While the Surety did receive collateral 
from a third party, not the agent, to support 
the agent’s indemnity agreement at the tiine 
the bond was entered into in January 19$0, 
the Surety was compelled to surrender tins 
collateral to the third party, after that third 
party had ascertained that the Surety, at 
the request of the Fleet Corporation, had 
agreed that the bond, given to secure the Mr 
and 0" contracts, should extend to the M0° 
contract. In making this surrender, the 
Surety had no choice, since the third party’s 
consent was never obtained to the extension 
of the coverage of the MO 3 contract, and the 
security was given only for the bond as cov¬ 
ering the M 2 and O 2 contracts. 

While no evidence of the foregoing ap¬ 
pears in the record as made by the stipula¬ 
tion of facts, this was thought entirely Un¬ 
necessary since the only two issues befbre 
the Court imder the stipulation were, first, 
whether the notice provision is a condition 
precedent and, second, whether the Fleet 
Corporation has complied with that notice 
and condition. 

Obviously, this question of collateral iias 
no bearing on either of these two issues, t)ut, 


i 



4 


if the question were raised by the pleadings, 
or at the time the stipulation was entered 
into, appellee would have submitted compe¬ 
tent proof which would have fully substan¬ 
tiated the truth of the foregoing statement. 

It is clear that the statement made by counsel is 
prejudicial and incomplete, inasmuch as it does not 
establish the amount of collateral held by the Ap¬ 
pellee, the time when this collateral was obtained, 
how and whence it was obtained, when and under 
what circumstances this collateral was surrendered, 
and when the “ third party ascertained that the 
Surety had agreed to extend the bond to cover the 
MO 3 contract.” 

We submit that the above quoted statement 
amounts to testimony by opposing counsel, that it 
violates the stipulation upon which this case is sub¬ 
mitted, and that it is highly improper on the part 
of opposing counsel to include said statement in 
any brief or argument. Therefore, we ask that the 
quoted statement be disregarded by this Court and 
expunged from the record, and we so move. 

B. Statements concerning other cases decided by lower court 

Counsel for Appellee, at the outset of their ar¬ 
gument (p. 6 Brief for Appellee), invite this 
Court’s attention to other cases decided in the 
United States District Court for the District of 
Columbia adversely to Appellant. It is novel, to 
say the least, for counsel to cite unreported deci- 





0 


sions of a lower court as precedents to guide |or 
govern this Court in its decision of this case. Bht, 
counsel are not content merely to cite these loiter 

*■ i 

court “decisions and findings.” They undertake 
to draw conclusions from the pleadings and evi¬ 
dence in these cases that they were 

brought by the Fleet Corporation against 
sureties on bonds involving the identical 
clause and form of bond in suit, and involv¬ 
ing, as well, substantially the same character 
of claims as those made here. 

The present case is before this Court on appeal 
upon a stipulated record . One of these cases Re¬ 
ferred to is before this Court on appeal. 1 The other 
two" were not appealed and never can be brought 
before this Court. There is no record of these two 
cases, nor of the issues involved therein, of which 
this Court may take judicial notice in order to de¬ 
termine for itself the accuracy of opposing counsel's 
conclusion that the identical clause and form j of 
bond herein were involved therein, as well as sub¬ 
stantially the same character of claims. The Rec¬ 
ord in this case contains no evidence with respect 
to the facts of these cases, nor would such evidence 
have been admissible had it been offered. Certainly 

j 

it is wholly improper for counsel to seek to dr^w 
— 

1 United States v. American Surety Co ., Equity No. 55630. 

- United States v. Aetna Casualty and Surety Co ., Equity 
No. 55145 and U. S. S. B. M. F. C. v. American Surety Co., 
Law No. 77988. 


i 


i 





6 


conclusions, in their brief, based upon the pleadings 
and evidence in these cases. The accuracy of the 
quoted statement is denied. The facts pertaining 
to notice and with respect to the defaults in each 
case were different. How can it be said that “sub¬ 
stantial Iv the same character of claims'’ were in- 
volved? Furthermore, two of the three cases re¬ 
ferred to were brought on the equity side of the 
lower court. The pleadings were different and the 
issues were different. There was no stipulated rec¬ 
ord and the evidence as to some of the material 
facts was conflicting. It is, therefore, asserted that 
the inclusion of such a statement in a brief cannot 
be justified and that it should be disregarded by 
this Court and expunged from the Record, and we 
so move. 

II 

Letter of January 4, 1929 

On pages 40 and 41 of Appellee's brief it is 

asserted that it is “wholly out of place in any argu¬ 
ment” for counsel for the Appellant to draw cer¬ 
tain inferences and conclusions from Appellee’s 

letter of January 4, 1929, concerning the collateral 
held by the Appellee and other matters covered by 
that letter. Drawing logical deductions from a 
document in evidence is certainly not “out of 
place,” but the legitimate function of a brief. It is 
appropriate, therefore, for us at this point to com- 









7 


ment further upon the contents and effect of !the 

i 

letter which was written on January 4, 1929. 3 

At pages 40-41 of Appellee’s brief an effort is 
made by counsel to repudiate the statements made 

I 

by Appellee in this letter. The contention is made 


3 The Court's attention is invited to the fact that, at the 
time this letter was written on January 4, 1929, counsel for 
Appellee were, and had been since August 1925, counsel of 
record in another case filed by the Fleet Corporation in the 
District Court against certain surety company defendants 
which they omitted to cite or comment upon as ‘‘involving 
the identical clause and form of bond in suit, and involving, 
as well, substantially the same character of claims as tJhose 
made here.” The quoted comment would have equal appli¬ 
cation to this case as to those cited and commented upon at 
page 6 of Appellee’s brief. It is apparent that counsel had 
more than three years to consider the legal effect of th$ no¬ 
tice clause, and various possible defenses to an action against 
surety companies, involving the Fleet Corporation’s bond to 
cover MO 3 and MO 4 agreements at the time Appellee pre¬ 
pared its letter of January 4,1929, obviously written under 
advice of counsel. 

The case referred to was still pending in the District 
Court at the time counsel filed Appellee's brief herein on 
October 18, 1937, and is styled U. S. S. B. E. F. C. to thV use 
of U. S. A. v. New Amsterdam Casualty Co ., et «/., At Law 
No. 70557. The Green Star Steamship Corporation was the 
principal and obligor under the bond executed in its behalf 
by one of Appellee’s counsel as Assistant Secretary on Feb¬ 
ruary 13, 1920. Thus it will be seen that counsel for! Ap¬ 
pellee had had long experience, both as an official of a com¬ 
pany operating under MO 3 and MO 4 agreements and as an 
attorney for surety companies in defense of an action on a 
bond involving such agreements, prior to the writing of Ap¬ 
pellee’s letter of January 4, 1929, which was doubtless in¬ 
tended to be self-serving but has had the opposite effect 
herein. 

39526—38-2 i 






8 


that these statements have no probative force and 
are not binding upon Appellee. In other words, 
because the letter states that it is to be taken “with¬ 
out prejudice to any defense” and specifically re¬ 
serves the “right to present any and all defenses," 
all other statements therein are meaningless. 

Counsel for Appellee now take the position that 
“the letter was, obviously, not an admission 
against interest.” While it is made a part of the 
record by stipulation, it is now contended that its 
contents must be utterly disregarded. For what 

i 

purpose teas this letter 'made a part of the record f 
On page 44 of Ap])ellee’s brief, counsel state that 
“the facts are set forth in documentary form, em¬ 
bodied in a ‘Stipulation of Facts’ and not subject 
to dispute.” We agree. Do counsel in the same 
breath contend that only Appellant is bound by 
statements of fact appearing in the various docu¬ 
ments embodied in the Stipulation and that Ap¬ 
pellee may dispute all statements of fact therein, 
whether such statements are made by Appellee’s 
own witnesses or not ? 

Counsel for Appellee quote copiously from vari¬ 
ous letters and memoranda written bv officials of 
the Shipping Board and the Fleet Corporation (pj). 
23-28, Brief for Appellee), which documents are 
embodied in the Stipulation, to sustain their con¬ 
tentions. Are the statements contained in these 
letters and memoranda to be regarded as having 
more probative force than statements made by 
Appellee’s officials? 









9 


j 

i 


Counsel for Appellee go so far as to say (page 
41) that it is— j 

wholly out of place in any argument on fhe 
interpretation of the bond to say (as coun¬ 
sel say on Page 32) that “appellee admits” 
that there is no charge of fraud, dishonesty, 
or unfair dealing. 

I 

and, further, that j 

it is equally out of place to contend that any 
one is bound by the fact that the letter did 
not happen to mention the “ collateral, ’j or 
state that the Surety had already been 
prejudiced by giving up the collateral 
* * *. [Italics ours.] j 

In passing, it may be noted that nowhere in Ap¬ 
pellant’s brief have we stated that the “surety had 
already been prejudiced by giving up the collat¬ 
eral.” We did not know then from the evidence in 
this case, and do not know now, that the surety has 
given up the collateral. 

This argument, coming as it does from couhsel 
who undertake to supply in a brief testimony which 
they should have adduced, had they been abld to, 

i 

before they submitted their case to the lower ccjurt, 
is somewhat extraordinary. We wonder that, 
having gone so far, counsel did not undertake to 
tell this Court why two of the cases in the lower 
court were not appealed, and what has become of 
the one case in that court wherein they appeared 

i 

as counsel for the defendant-surety companies 
prior to January 4,1929, when their present client 






10 


wrote the letter now under discussion. As we 
pointed out in our argument (p. 31 Brief for Ap¬ 
pellant), this letter is: 

very long and carefully written. All liabil¬ 
ity is denied. Legal defenses, including 
failure to give notice, are set up. It was 
written more than six years after the Com¬ 
pany inquired of the Corporation whether 
there would be any claim under the bond 
(Exhibit 16, R. p. 97). 

We might have added that it was, obviously, pre¬ 
pared under advice of counsel. In view of the 
situation which has now arisen, it is pertinent to 
inquire if it were written under the advice of Ap¬ 
pellee’s present counsel. In any event, we submit 
that their client is bound bv the statements therein 
contained for the purposes of this appeal. We 
quote from the Stipulation: 

It is further stipulated that solely and 
only for the purpose of trial of the aforesaid 
issues, the following shall be taken, treated, 
and established as facts in this cause, sub¬ 
ject, however, to such objection as either may 
make as to relevancy and materiality of any 
such fact. 

Thereafter follow paragraphs numbered 2 to 34, in¬ 
clusive (R. pp. 64 to 69). The letter of January 4, 
1929, is made a part of Paragraph 34, and marked 
Exhibit 25 (R. Page 69). There is no reservation 
made with respect to the contents of the letter simi¬ 
lar to the reservation appearing in the next para- 


graph with respect to what Raymond F. Tallihan 
would testify to if introduced and sworn as a fit¬ 
ness. In paragraph 35 there appears in parentheses 
this reservation (R. p. 69): | 

without admitting his statements as fabts. 

In Paragraphs 36 and 37 (R. p. 70), it is like¬ 
wise stipulated, with respect to what Vaughn T. 
Harford and Glenn Rose, respectively, would tes¬ 
tify to, that the same reservation be made. No 
other similar reservation appears anywhere in the 

Stipulation. The Exhibits referred to in the Stipu- 

! 

lation, and expressly made a part thereof, mjun- 
bered 1 to 25, inclusive, are the evidence in this case. 
Whatever inferences and conclusions are fairly de- 
ducible from the statements contained in said ^Ex¬ 
hibits are binding upon the respective parties. 
Counsel may not now seek to avoid such implica- 

j 

tions. This case is before this Court, as it was be- 

! 

low, upon a stipulated record. It is too late how 
for either party to add to, subtract from, or other¬ 
wise change or modify that record. Such oppor¬ 
tunity may be afforded counsel when, as and if the 
case is remanded for trial in the District Court. 

i 

m 

| 

Inconsistent and conflicting statements 

On Page 30 of Appellee’s brief appears the fol¬ 
lowing statement: 

| 

The obligation to notify accrues immedi¬ 
ately upon the discovery by the Fleet Cor- 



12 


poration of any evidence that the ageiit had 
breached its duties with respect to the trust 
fund moneys . Such evidence appears as 
soon as the trust fund moneys have been im¬ 
properly taken from the trust fund and ap¬ 
propriated by the agent to its own use, and 
the Fleet Corporation learns of it. [Italics 
ours.] 

Even a tortured construction of the language of 
the bond could not twist and distort the meaning 
of “any evidence of loss’' into “anv evidence that 
the agent had breached its duties with respect to 
the trust fund monies”. Counsel for Appellee here 
contend that it would be the duty of the Corpora¬ 
tion to notify the Surety upon discovery that the 
Agent had withdrawn $10.01 from the trust fund 
without proper supporting vouchers, as required 
by paragraph 9 of the MO-3 agreement, or had 
withdrawn a single penny from the trust fund with¬ 
out supporting vouchers as required by the same 
numbered paragraph of the MCM: agreement (R. 
p. 21 and p. 25, respectively). Whether or not a 
loss resulted would be whollv immaterial. Such a 
contention is absurd on its face. 

We have maintained that there is no obligation 
to notify the Surety until and unless there is “evi¬ 
dence of loss”. The Court’s attention is invited to 
the following statement : 

However, whether or not the agent was 
entitled to take its commissions out of the 
trust fund or had actually earned that 




13 


amount of commission at that time is tie- 
side the point, because to constitute a liabil¬ 
ity under the bond, there must be not ohly 
a default but also a pecuniary loss. 
Obviously, if the agent had earned and whs 
entitled to commissions, equal in amount jto 
that alleged to have been withdrawn or if it 
has reimbursed the trust fund for the amoufit 
withdrawn over and above what it had 
earned and was entitled to, then plaintiff can 
have sustained no loss of trust funds. 

That no loss has been sustained to the trdst 
fund is clear because plaintiff concedes that 
of this $192,890, withdrawn as commissions 
earned under the “MO-3” agreement, the 
agent had earned and was entitled to be 
credited with $142,865.60 (See the fourth 
paragraph of Schedule 2 of the “ Account”, 
Exhibit 8), thus leaving the Agent at this 
state of the transaction, indebted to the trbst 
fund in the amount of $50,024.99. Then lit 
is conceded that the Agent after the above 
mentioned withdrawal, actually paid into br 
reimbursed the trust fund in the sum of 
$120,000. (See the third paragraph pf 
Schedule 2 of the Account.) Thus, instead 
of a deficit to the trust fund, it apepars thnt 
by this payment or reimbursement, the 
“trust fund” is indebted to the Agent in the 
amount of $69,975.01. j 

In other words, the amount which .plaih- 
tiff concedes the agent to have actually 
earned as commissions, plus the amoufit 
which plaintiff concedes had been replaced 




14 


in the trust fund, exceeds the $192,890.59 
originally withdrawn by $69,972.01. 

It is apparent, not only that plaintiff has 
sustained no loss to the trust fund by the 
withdrawal of this $192,890.59, but also that 
no loss has been sustained to the trust fund 
by reason of the withdrawal of the remaining 
two items of the claim, because, as shown 
above, the amount in the trust fund to the 
credit of the Agent was largely in excess of 
these two items. [Italics ours.] 

The last quotation is taken verbatim from pages 
6 and 7 of a brief filed by counsel for Appellee on 
December 7,1931, in this case ! Are they now going 
to repudiate this statement of their own as they do 
their client’s of January 4, 1929, obviously made 
under advice of counsel, that it does not “ appear 

i 

that there is any ground for charging” fraud, dis¬ 
honesty, or unfair dealing? 

IV 

Liability not limited to improper withdrawals from trust 

fund 

Counsel for Appellee, after misstating the duty 
to notify the Surety on page 30 of their brief, as 
above noted, state it more accurately on page 31, 
as follows: 

* * * the duty of the assured was to no¬ 

tify the Surety promptly upon the discovery 
of any evidence of the breach and the loss 
resulting therefrom. [Italics ours.] 






15 


Since, according to their own argument, no toss 
resulted from the withdrawls from the trust fupd,- 
there could be no dutv to notify. Therefore, if any 
such duty existed, it must arise from discovery of 
a loss resulting from some default other than ah 
improper withdrawal from the trust fund. Appel¬ 
lant contends that a loss did result from Sigsljee- 
Humphrey Company’s default in failing to ac¬ 
count for moneys for which it was accountable 
under the agreement covered by, and referred to 
in, the bond. Appellee’s contention that the <Jec- 
laration and bill of particulars limit the Surety’s 


liability to improper withdrawals from the trust 
fund ignores the several allegations in the declara¬ 
tion of failure to account (E. p. 6). A mere glance 
at the declaration is sufficient to dispose of this 


contention: 

(14) That said Agent did not faithfully 
or properly perform its obligations as Agjent 
for the aforesaid vessels under the said 
“M-2,” “0-2,” “MO-3,” and “MO-4” 
agreements, but on the contrary wholly heg- 
lected to discharge such obligations or per¬ 
form such duties during the period of said 
management and operation of such vessels, 
and during the life of said bond, in that said 
Agent came into possession and control of 
large sums of money belonging to the plain¬ 
tiff, to the use of the United States of Amer¬ 
ica, arising out of the operation and nian- 
agement of said vessels, for all of winch the 



16 


said Agent was liable to account to the plain¬ 
tiff under the terms of said agreements. 
Said Agent committed large numbers of de¬ 
faults under the terms and obligations of 
said agreements, in that said Agent did not 
account for said moneys to the plaintiff or 
to anyone else on behalf of the plaintiff, it 
did not disburse the said monevs solely for 
the operation, management, and business of 
said vessels, did not faithfully account for 
and turn over to the plaintiff or to the United 

States of America the moneys and other 

* 

properties for which the said Agent was ac¬ 
countable and has taken credit for items 
for which it should be charged (R. p. 6). 

Counsel for Appellee on page 19 of their brief 
quoted the remainder of paragraph 14 of the dec¬ 
laration but ignored the portion above quoted 
which contain the allegations concerning failure to 
account. 

Likewise the contention that liability for failure 
to account is limited to a failure to account for 
moneys coming into the possession and control of 
the agent which, under the operating agreement, 
was required to be deposited in the trust fund, is 
disposed of by reference to the last clause of the 
defeasance condition of the bond— 

* * * shall faithfully account for and 
turn over to the United States Shipping 
Board Emergency Fleet Corporation any 








moneys, property, or other funds for which 
it may be accountable * * *. [Italics 

ours.] 

It seems too clear for further argument that the 
Agent is “accountable” for any moneys it receives, 
from whatever source, in connection with the 
charges and expenses, on the one hand, and the 
credits and collections, on the other, incident to the 
management and operation of the vessels of the 
Corporation pursuant to their agreement. Under 
paragraph 9 of the MO-3 agreement (R. p. 21) the 
agent was required to deposit in a trust fund only 
those moneys collected on behalf of the Corpora¬ 
tion. By no reasonable construction can para¬ 
graph 9 be interpreted to relieve the Agent of jits 
duty to account for any other moneys received, 
whether for compensation under the agreement, | or 
an advance thereon, or what not. But to cover the 
accountability of the Agent for advances made |by 
the Corporation, and to require advances to be de¬ 
posited in the trust fund, the last sentence of para¬ 
graph 9 of the MO-3 agreement (R. p. 2l), 
reading: 


The compensation due The Agent shall be 
paid monthly on vouchers from the Corpora¬ 
tion. 


was stricken out and the following inserted in lieu 
thereof in paragraph 9 of the MO-4 agreement (1R. 


p. 25)- 





18 


In case the amount of funds held by The 
Agent for The Corporation should be in¬ 
sufficient to meet the disbursements neces¬ 
sary on the vessels of The Corporation, The 
Agent may secure an advance from The Cor¬ 
poration which shall be deposited in the fund 
and accounted for in such manner as The 
Corporation may direct. 

The MO-4 agreement, entered into on February 
10,1921, was made retroactive to March 1,1920, and 
expressly abrogated the MO-3 agreement entered 
into March 4, 1920, effective as of March 1, 1920 
(R. p. 28). There is nothing whatever in the MO-4 
agreement which forbids the Agent to take from 
the trust fund whatever sum or sums may be 
earned from time to time as compensation for serv¬ 
ices as provided in paragraph 11 (R. p. 26). The 
trust fund was made subject to check by the Agent 
and paragraph 9 expressly authorizes disburse¬ 
ments for the account of the Corporation. Cer¬ 
tainly disbursements made to itself by the Agent 
for compensation are disbursements for the ac¬ 
count of the Corporation; and, when received by 
the Agent, such disbursements must be accounted 
for under provisions of paragraph 9 to “render a 
full account of all moneys received” (R. p. 25). 
There is nothing whatever in the MO-4 agreement 
to support the contention that withdrawals from 
the trust fund by the Agent for compensation for 
its services are improper withdrawals, or that the 







Agent is not accountable for such withdrawal^— 
quite the contrary. And we have shown from the 
provisions of the bond itself, above quoted, that the 
surety is liable for all moneys, property, or otlfer 
funds for which the Agent may be accountable. 

I 

Notice given October 24, 1922 
V 

I . 

Counsel for Appellee, on page 58 of their brief, 
make the following categorical statement: 

Throughout the brief of counsel for appel¬ 
lant many assertions, representations, ahd 
promises have been read into this five line 
letter which are plainly and obviously riot 
there. 

To what 4 ‘assertions, representations, and prom¬ 
ises” do counsel refer? Admittedly the Corpora¬ 
tion’s letter of October 24, 1922, “purported to be 
in reply to a letter of inquiry from the surety’s 
agent in Washington”. This “letter of inquiry”, 
dated October 11, 1922, according to counsel cdn- 
tained “a simple question as to whether there \^as 
any liability on the bond”. We cannot agree that 
the contents of the “letter of inquiry” is so limited, 
or that the questions suggested therein are, as 
stated by counsel, limited to one single “simple 
question”. It can hardly be contended that the 
question of liability, even if it had been askdd, 
which it was not is “simple”. That is the quds- 


tion we have been endeavoring to obtain an answer 
to for more than six years. It would have required 
a letter much longer than the “five line letter” of 
October 24,1922, to attempt an answer to this ques¬ 
tion. We doubt whether the Surety would have 
accepted the Corporation’s answer had it attempted 
to give one. 

The letter contained much more than a single, 
“simple” question. The first paragraph dealt with 
the collateral held by the Surety. The second para¬ 
graph referred to the fact that the Surety had been 
in touch with the Corporation a day or two earlier, 
was advised that an audit of the Sigsbee Humphrey 
Company’s account was being made, and specifi¬ 
cally asked to be notified “whether there will be 
any claim under our bond.” Can there be any 
doubt that the Corporation's “five line letter” in 
reply was sufficient to put the Surety on notice that 
there would be a claim under the bond, depending 
upon the results of an audit'? A million lines in 
reply could not have spoken more eloquently or 
significantly. Yet counsel seek to convey the im¬ 
pression that the Surety’s agent in Washington 
was so little impressed that he failed to notify the 
“home office of the Company” of its contents and 
implications. 

We have made no contention that this “five line 
letter” constituted a formal notice in compliance 
with the terms of the notice clause of the bond. 






21 


Counsel for Appellee are shadow-boxing. We con¬ 
tend that this letter did put the Surety on notice 

i 

that a claim would be made if an audit, then in 
progress, showed a loss. And we further contend 
that the Surety, with this information in its pos¬ 
session, sat idly by for nearly six years and thereby 
waived any right to receive any further notice. 
Nevertheless, out of an abundance of caution, the 
Corporation did give the Surety formal notice on 
April 3,1928, upon discovery of evidence of lo^s as 
revealed by final audit. 

conclusion ; 

i 

! 

The authorities cited by counsel for Appellee to 
support their contentions have been commented 
upon at sufficient length in our brief. We do not 
deem it necessary to make further comment other 
than to point out that every case relied upon! by 
counsel to sustain Appelee’s argument that notice 
is a condition precedent to liability is a case involv¬ 
ing a fidelity bond and that, in every instance, jthe 
fidelity bond under consideration not only con¬ 
tained a “condition” worded differentlv from that 

* 

of the bond in suit but also contained some other 
limitation tied up with the notice requirement, j 
We cannot agree with counsel’s analysis of the 
McMillan case (Southern Surety Co. v. McMillan, 
58 Fed. (2d) 541), appearing on pages 50—5l| of 
their brief and w T e respectfully invite the Court’s 



22 


attention to our own analysis of that case appearing 
at pages 50 to 58 of our brief. 

Respectfully submitted. 

Sam E. Whitaker, 

Assistant Attorney General. 

David A. Pine, 

Acting United States Attorney. 

H. L. Under wood, 

Assistant United States Attorney, 

Attorneys for Appellant . 

Max O’Rell Truitt, 

General Counsel, 

United States Maritime Commission. 
Paul D. Page, Jr., 

Keith Carlin, 

Of Counsel. 


U. S. GOVERNMENT PRINTING OFFICE; 1938